Are repossessed houses cheaper?

Sometimes. A repossessed house is not automatically cheaper. Whether it sells below market value depends on four things: the state of the market, the type of loan, how the property is sold, and how it was valued.

Most people don't know that a lender selling a repossessed home has a legal duty over the price. So when there is a discount, it comes from the circumstances of the sale, not from the word "repossessed".

Here's how it works. Plain English. No padding.

Part of our guides to buying repossessed property in the UK.

Are repossessed houses always sold below market value?

No. A lender selling a repossessed home must take reasonable care to get the true market value at the time of sale. That duty comes from case law: Cuckmere Brick v Mutual Finance (1971).

For regulated residential mortgages, FCA rules go further. Under MCOB 13.6, the lender must market the property as soon as possible and obtain "the best price that might reasonably be paid".

Any money left after the debt and sale costs belongs to the former owner. A lender that sells too cheaply risks a complaint or a claim. So a repossession is not a fire sale by design.

When is a repossessed house more likely to be cheaper?

Five factors decide how much room there is on price.

The more factors sit in the right-hand column, the more likely the sale price falls below what a normal seller would accept.

Does the property market change the price of repossessions?

Yes, more than anything else. In a rising market there are always buyers. Competition pushes repossessed homes close to full market value, and sometimes above the asking price.

In a flat or falling market, a repossession is a forced sale. The lender cannot wait for prices to recover while interest and costs build up. The courts have confirmed that a lender does not have to delay a sale to wait for a better market (Silven Properties v Royal Bank of Scotland, 2003).

So in a dead market, the lender takes what the market will pay today. That is where most genuine bargains come from.

Why are bridging loan and buy-to-let repossessions different?

Most buy-to-let mortgages are not regulated by the FCA as home loans. Bridging loans on investment property usually aren't either. A bridging loan secured on the borrower's own home can be regulated, so check which applies.

When the loan is unregulated, the MCOB rules that protect homeowners don't apply. The former owner has less protection than a homeowner with a residential mortgage.

Lenders often appoint an LPA receiver instead of taking possession through the courts. A receiver must still take reasonable care over the price, but the process can move faster.

Bridging lenders also want their money back quickly. Bridging loans are short-term and expensive, and the interest keeps rolling up. Speed plus fewer protections makes a below-value sale more likely.

Do repossessed houses go to an estate agent or to auction?

Usually an estate agent first. If the house isn't a disaster, the lender's asset manager instructs a local estate agent. The property is listed on Rightmove and Zoopla like any other home.

A mortgageable home sold through an agent reaches owner-occupiers as well as investors. That wider pool of buyers keeps the price close to market value.

Auction usually comes next, or first if the property is in poor condition. Typical reasons include no offers through an agent, serious disrepair, short leases or problems that stop a buyer getting a mortgage.

At auction there is less of a floor under the price. The reserve is the only floor, and the seller sets it. It may be guided by the 90-day valuation. Most auction buyers need cash or bridging finance and must complete quickly, often within 28 days. Fewer buyers can compete, so prices can fall further.

Auction buyers also pay extra fees. Budget for buyer's premiums and administration fees on top of the hammer price.

What are 90-day and 180-day valuations?

When a lender repossesses a home, the valuer usually gives two figures. Each one assumes a different amount of time to sell.

The 90-day value is lower than the 180-day value. A quick sale reaches fewer buyers, so it achieves less.

These valuations are carried out by a RICS Registered Valuer under the RICS Red Book standards. The selling period is stated as an assumption in the report.

Here's why it matters. A repossessed home sold through an estate agent is usually priced around its 180-day value. Expect to pay close to market value. A repossessed home at auction may be sold against its 90-day value. That is where the room on price comes from.

So, are repossessed houses cheaper?

The answer is sometimes, subject to these things:

• Rising market, regulated mortgage, sold by an agent: expect a price close to full market value.
• Falling market, unregulated or bridging loan, sold at auction: there is more room for a price below market value.
• Everything in between: it depends on condition, how long it has been for sale and what the lender's valuation says.

The label alone is not a discount. The circumstances are.

How can you tell if a repossessed house is good value?

• Check sold prices for similar homes nearby on HM Land Registry data.
• Check how long it has been listed and whether the price has been reduced.
• Find out who is selling: a lender's asset manager, an LPA receiver or an auction house.
• Get a survey before you commit. Repossessed homes are sold as seen.
• Add every cost, including auction fees, repairs and stamp duty.

Learn the signs in our guide to how to spot a repossessed house, and read whether it is unethical to buy a repossessed house.

Frequently asked questions

Are repossessed houses cheaper than normal houses?

Sometimes. In a rising market they usually sell close to market value. They are more likely to sell cheaply in a falling market, at auction, or when the loan was unregulated.

Do banks sell repossessed houses cheaply?

Not by choice. Lenders must take reasonable care to get market value, and regulated lenders must aim for the best price reasonably obtainable. Any surplus goes to the former owner.

Why do some repossessed houses go to auction?

Usually because they didn't sell through an estate agent, are in poor condition, or can't easily be mortgaged. Auction sells them quickly, but with less of a floor under the price.

Can you offer below the asking price on a repossessed house?

Yes. The lender will consider any offer, but must show it tested the market. An early low offer may be held until the property has been properly marketed.

Are buy-to-let repossessions cheaper?

They can be. Buy-to-let and bridging loans are usually unregulated, so the former owner has fewer protections. Receivers can also sell faster than a lender selling through the courts process.

What is a 90-day valuation?

A valuation that assumes the property must sell within 90 days. It is a fire-sale figure, lower than open market value, and is often used for auction sales. A 180-day valuation assumes a normal six-month sale and is effectively open market value.

Find repossessions and see who is selling

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This guide is for information only. It is not financial, tax or legal advice. Always take independent advice before buying property.