With the housing market falling and repossessions rising, property auctions could set buyers on a home run to bricks-and-mortar bargains.
More than 19,000 homes were repossessed during the first half of this year as homeowners struggled to meet their loan repayments, according to the latest figures from the Council of Mortgage Lenders (CML). That statistic represents a 40 per cent rise on the previous six months.
Nationalised Northern Rock came under fire recently over its aggressive stance on seizing homes after it emerged that the bank's repossession rate in the first half of 2008 was double the industry average.
The flipside of repossessions, however, is that they offer buyers the opportunity of snapping up a home at a big discount on the price.
"Auctions used to be a popular way of selling property with an indefinable value – a house needing a lot of renovation work, say," explains Philip Selway from The Buying Solution, the independent consultancy arm of estate agent Knight Frank. "They then went out of fashion for a time because they require a lot of upfront work and expense, including surveyors' and solicitors' fees."
But with the rise in repossessions, he says, auctions are making a comeback. "They usually comprise properties from forced sales and the bottom end of the market, and tend to be attended by those looking for a real bargain – property developers and people who like to 'play the market'."
The latest Residential Auction Property Investment Data (Rapid), compiled by auctioneer Allsop and auction specialist The Essential Information Group, shows a rise in residential sales in the first half of 2008.
According to Rapid, a fifth of all residential lots offered nationally at auction in the second quarter of this year were repossessions – or "distressed lots", as they are otherwise known. That proportion rises to between 50 and 60 per cent of Allsop's recent auction catalogues.
"The last 12 months have seen a dramatic change in the residential auction market, and average lot sizes have dropped across all areas," says Gary Murphy, a partner at Allsop and spokesman for the Royal Institution of Chartered Surveyors (Rics). "Voluntary sellers of higher-value lots have largely withdrawn and buyers of higher-value lots, with equity and access to finance, are limited. On the other hand, the volume of lower-value stock offered is swelling as repossessions increase."
But while all auction houses are reporting a rise in the number of repossessed homes on offer, a significant proportion remain unsold: Rapid figures show that success rates for the first half of 2008 fell to an average of 59 per cent.
"This is largely due to overpricing in an increasingly weak market," says Mr Murphy. "We anticipate that the success rate will improve as vendors face up to the need to price attractively to achieve results."
That said, he adds, in the current distressed climate for the housing market, some properties are selling at a big discount on the previous asking price through estate agents .
But Mr Murphy is adamant that auctions remain a valid way of shifting property, saying "there is no such thing as a bad lot" and that "everything will sell as long as the price is right".
He is not alone in this conviction. "While many repossessions are sold, a wide variety of sellers are finding that auction is the best way of achieving a definite sale in the current market," says John Fearnehough, director of Mustbesold.com, an auction house.
"More and more people who are unable to sell their property through a high-street agency are turning to auction houses," he says. "And we are now also seeing a diverse range of buyers, from seasoned investors to first-time buyers."
Auctions can offer a good opportunity to get your foot on the first rung of the ladder at a reasonable reduction on the market price. And once the hammer comes down on a bid, there's no chance of being gazumped later because binding contracts are exchanged on the day.
Nonetheless, argues Louise Cuming of price-comparison site Moneysupermarket.com, "buying at auction is for the experts, so novices should enlist experienced support. But don't be put off as there are undoubtedly bargains to be had."
As a buyer, be aware that once your bid has been accepted, you will need to put down a deposit – usually 10 per cent – on the day itself when contracts are exchanged. You will then have just 28 days to pay the remaining balance.
"The key is to have a mortgage agreement in principle on the day of the auction," says Melanie Bien at broker Savills Private Finance. "This was always the case, but problems in the market and the increased difficulty of obtaining finance make it more crucial than ever when buying at auction as there is such a tight timeframe."
Before setting foot in the auction room, you must take the time to visit the home and inspect it thoroughly. "Most auction properties are in need of 'care and attention', so do your research before entering the fray," says Ms Cuming. "Determine the extent and cost of the remedial work before bidding, because after a successful bid it will be too late."
You should also instruct a solicitor to carry out all the usual property and land searches, alerting them to the auction date as far in advance as possible. "You need to ensure your solicitor has done the homework to ensure there are no legal gremlins," Ms Cuming explains.
Be warned that obtaining survey reports and contractors' estimates is often a lengthy process – and an expensive waste of money if the sale falls through.
"There may be dozens of interested parties for popular properties, but only one buyer will be successful," Ms Cuming points out. "As a result, there can often be a lot of homework done in vain, and potential heartache, for all but the winning bidder."
On the day itself, you will need to have 10 per cent of your maximum bid, your solicitor's details, two forms of identification and your auction catalogue. And the key thing before you make an offer is to have decided on your buying strategy.
"Determine your maximum bidding limit and stick to it," says Ms Cuming. "Don't get carried away in the excitement of the moment – the auctioneer's gavel is decisive."Reuse content