Property auctions: The route to your first home?
For those with the deposit – and the nerve – auctions can produce excellent prices. But tread carefully, warns Ginetta Vedrickas
Wednesday 29 April 2009
First-time buyers may be finding it hard to get on to the property ladder, but a trip to the auction rooms reveals that, for some first- timers, this can be one route to getting a home of their own.
While sales through private treaty have dropped dramatically since their peak in 2007, sales in the auction rooms are firmly on the rise. In 2000, auction sales represented just 1.28 per cent of all sales compared with 2.23 per cent by the third quarter of 2008, with numbers constantly increasing. Auction property company the Essential Information Group, EIG, revealed a 22 per cent rise in the number of lots coming to auction over the past year.
Recently, the Council of Mortgage Lenders said that repossessions were expected to rise from about 45,000 last year to around 75,000 this year – many of which will end up in the auction houses. Research by the EIG, for their monthly bulletin RAPID, a joint initiative with Allsop, found that the volume of new-build flats offered at auction rose to 628 in the last quarter of 2008 with London seeing the most marked increase.
Auction attendees are also increasing. Allsop, the largest residential auctioneer in the UK, announced that it had sold 91 per cent of its catalogue last month, with attendance at auctions also rising. Allsop's partner and auctioneer Gary Murphy says: "Prudent buyers with cash to invest are now facing real investment opportunities. For occupiers, and first-time buyers in particular, there is a great variety of property for improvement available at auctions," says Murphy adding that, while many vendors are still trying to sell at unrealistic prices, the auction rooms are where you find the true market level.
After years of being forced out of the market through a combination of rising prices and reluctant lenders, first-time buyers can hope to enjoy the benefits of buying at auction. Buying a home of your own inevitably requires nerves of steel as you battle your way through the mortgage maze, legal considerations and negotiating for your chosen home, but is buying at auction any less fraught? Compared with buying through the traditional route, the benefits are clear.
Auctions delete the hefty administration costs usually involved with purchasing a property and often offer a cheaper asking price. They also offer a far speedier purchase time, with no complicated onward chains.
Yet, while the benefits are obvious, so too are the downsides. New build may increasingly feature in the catalogues but auction stock also includes properties with structural defects and legal problems. Crucially, buying at auction imposes tight deadlines, which for anyone reliant on a mortgage, may prove impossible to meet. Getting your mortgage offer before bidding is vital says Andrew Hagger of price comparison site Moneynet. "I can see why first-time buyers are attracted to buying at auction, a lower sales price means that they need a smaller deposit and mortgage, but they should never let their hearts rule their heads despite the fact that this may be the first time they've seen something they could afford in a long while."
Melanie Bien of Savills Private Finance advises first-timers to proceed with caution: "Your lender must be forewarned so that your application can proceed quickly, also a lender will only let you lend what the property is worth so don't get carried away and bid more than this as you will have to meet any shortfall in funding yourself."
Moneysupermarket.com's Louise Cuming adds that first-timers are inevitably competing with cash buyers so are at a disadvantage. "Lenders may be even more meticulous about lending on auction properties and may insist on all sorts of specialists' reports which take time," she says. She warns buyers not to get carried away: "Once the gavel goes down it's yours whether it has galloping dry rot or not."
Winning bidders must lay deposits of 10 per cent on the day of auction and are legally obliged to complete, usually within 28 days, risking losing their deposit if they fail to do so. Inevitably, buyers lose money on erroneous survey and legal fees if they do not win the lot of their choice. They may also find the process of finding and viewing potentially suitable properties a time-consuming task. Most auction companies list their lots and viewing days online but subscribing to a service such as the EIG, which gives you access to auctions nationwide and alerts you when a property in your location and budget is coming up, could put you ahead of the game.
Savills has seen registrations on its auction list soar by 90 per cent since the end of 2007. Auctioneer Paul Mooney has noticed more younger bidders in the auction room but doubts if many of them actually buy: "I think there's a big gap between viewing properties and then coming along with your 10 per cent deposit and finances in place and actually buying." Mooney notes that, for those who do have the required deposit, and nerve, then the auction room is the perfect place with prices you won't find in agents' windows: "Agents are still coping with vendors' emotions. If you bought two years ago, you won't be willing to take a 30 per cent reduction. Auctions are a great way to buy and there's plenty of stock that is clean and tidy."
One clean and tidy home in Savills' current catalogue is a three- bedroom terrace house in Leytonstone, north-east London where David Beckham lived as a baby. Listed in November for £850,000, sales agent Colin Evans claimed then to have received offers of over £1m. Today the more attractive reserve price is £215,000 but Mooney warns buyers to expect to pay more on auction day, 11 May (through Savills). "You could get lucky but chances are the price will rise on the day," he says adding that these low prices may not be around for much longer: "In February I sold a property to a buyer for £250,000 but he couldn't get the funds together. In March it went under the hammer for £350,000."
The Essential Information Group: 01737 226 150 www.eiggroup.co.uk ; Subscriptions from £42-£395+VAT. www.moneynet.co.uk; www.moneysupermarket.com; Savills Private Finance: 0870 900 7762; www.savills.co.uk
Savills 11 May
Royal Garden Hotel, 2 Kensington High Street, London W8 4PT
Colliers CRE 12 May
Radisson SAS Portman Hotel, Portman Square W1H 7BG
Cushman & Wakefield 19 May
BAFTA, 195 Piccadilly W1J9LN
Barnard Marcus 28 May
New Connaught Rooms, Great Queen Street, WCB 5DA
Allsop residential 2-3 June
Park Lane Hotel, Piccadilly, London W1J 7BX
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