Auctions Can Yield Results
There is growing evidence that the property recovery is gathering steam as latest reports from the auction rooms is that property is selling and selling at significantly above guide price.
According to a recent report in the Times the number of homes sold at auction has risen by almost two thirds in the past month.
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In a further sign that property buyers believe the housing market may be at or close to the bottom, Countrywide Property Auctions said that 79 per cent of all homes going under the hammer in the first two weeks of June had been sold, compared with 49 per cent in the same period last year.
Repossessions at auctions falling
However, those landlords and investors hoping to profit from a flood of cheap repossessed properties on the market may be disappointed. This is because the number of repossessions for sale at auction has actually fallen by 43 per cent in the past year.
Separate figures from the Essential Information Group (EIG), the auction website, showed a decline in the number of repossessed lots to 954 in the second quarter of this year, down from 1,674 in the same period of 2008.
Chris Coleman-Smith, head of auctions for Savills, the estate agent referring to the state of the auction market:
“This is different to the late Eighties and early Nineties, when there was an avalanche of repossessed properties in the auction rooms. This time there was a bit of an initial rush, then it tailed off.”
David Sandeman, managing director of EIG, said: “Repossessions have just not been appearing. Auctioneers are really struggling for these lots. It is either that there are fewer households being repossessed or that lenders are keeping them with agents in the hope of a sale that way instead.”
Other measures may have also contributed to the fall in repossessions appearing at auction.
Property Hawk recently highlighted how many lenders on buy-to-let properties are choosing rather than to have a fire sale of their repossessed buy-to-let properties to appoint a Receiver of Rent. This has cut significantly the potential number of buy-to-let repossessions hitting the market.
Equally, low interest rates and the Government backed Homeowner Mortgage Backed Scheme is keeping repossessions below original forecasts.
Dead cat bounce
The upshot of this is that prices at auctions are selling at 10 to 12 % more than their reserve prices as buyer interest outstrips demand. This all looks very positive and the crash in prices and the recent signs of stabilisation have encouraged a number of house buyers to look to pick up a bargain.
Countrywide, Britain’s fifth largest auctioneer, said it was seeing a growing number of people buying homes through auctions, as opposed to investment or development properties. Mr Tanton said: “The demographic of buyers in many of the auction rooms has shifted and we’re seeing a growing number of first-time buyers and parents looking to purchase a property to help their children get on the property ladder. Private buyers are now sat alongside our professional buy-to-let landlords and in many cases outbidding professional investors.”
There is no doubt that there are potential property bargains out there. The Times recently reported of the sale of two unmodernised properties new Harrow that sold for £152,000 and £159,000 in Savills December auction. Little more than six months later, homes on the same street were sold for £175,000 and £176,000. In the same auction last month, an end of terrace property – divided into four flats at 119 Camden Road, Camden sold for £813,000, more than 54 per cent higher than its £525,000 guide price.
However, the bounce in prices and confidence could be short lived.
Richard Donnell, of Hometrack, the property data company, warns that a sudden glut of properties on the market could dilute any price gains. While the Council of Mortgage Lenders has revised its forecasts to predict fewer than expected repossessions this year — 65,000 rather than 75,000 — David Sandeman, of EIG, believes that many market-subduing distressed sales may have been merely delayed.
With the Government applying pressure on banks to avoid repossessions, it now takes up to 12 months for a repossession to appear in the sale room, up from six. With unemployment rates set to rise further over the next 12 months repossessions could be set for a big rise. If more such homes appear in auctions, will there be enough demand from buyers to absorb this extra supply?
Property Hawk cautions property investors
All of this activity should make landlords and property investors a little cautious about diving into the property auction rooms too early as a sure fire way of picking up a property investment bargain. For a start many first time property auction goers are initially attracted to auction properties by their guide price. Having bought property at auction I can say that the guide price is largely meaningless as the ultimate sale price will frequently be well in excess of any guide. It is meant, as it often does, to drum up interest in the property and many inexperienced investors will be lured into the auction rooms on the belief that they can get an investment for only £40,000.
It is well known by experienced investors that first time auction goers and owner occupiers are likely to get carried away in the bidding process and possibly over pay for their property whilst more experienced investors remain steadfastly on the sidelines. Therefore landlords and new investors are always in danger that the excitement of the experience encourages them into buying a property above their original limit. Investors and landlords who go to the auctions room should ensure that they have done their research and be clear about their limit.
Chris Horne Editor of the landlord website Property Hawk warns landlords that having the finance, motivation and enthusiasm to buy a property shouldn’t lure landlords into over paying at auction.
“Landlords should be patient and this may involve several visits to the auction rooms before securing the right property at the right price. Landlords should avoid getting into a bidding war especially with an owner occupier or novice investor as this could easily drive the price way beyond the property’s true value.”
There is no doubt that the auction rooms can yield up some real property bargains but they can also provide a real trap for the inexperienced investor.
How do I know all this? Simple, it happened to me 15 years ago!
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