Deals are speedier and less stressful for both sellers and buyers, says company founder
Property auctions may hold the key for would-be buyers looking to close a quick deal with the minimum of fuss and at a potentially much lower cost, according to Stuart Collar-Brown (pictured), co-founder and director of My Auction.
Unlike a traditional private home purchase, a property auction can be completed in 28 days or less as a potential buyer receives all the pertinent documents, including the title deeds and conditions of sale, after they register an interest for a specific property. And once they have submitted the winning bid, buyers are locked into a contract.
In the current economic climate, with soaring mortgage rates, double-digit inflation and sky-high property prices, an auction could be the logical choice for many people, Collar-Brown said.
Read more: Homebuyers reveal what causes stress when purchasing a house
“Buying through auction is a far quicker and more certain process without the worry of chains falling through, hold-ups from solicitors and buyers changing their minds.”
There is evidence that property auctions are becoming increasingly popular. Data from EIG (Economic Innovation Group) shows that sales are currently more than 10.2% higher than this time last year.
That could support Collar-Brown’s view that they are also a less stressful experience. A recent survey by Moneybox Homebuying found that the top cause of stress for homebuyers were solicitors not getting back to them and the sheer amount of paperwork involved (28%), followed by a fear that the sale will not go through (24%) and waiting for survey results.
Unexpected costs and not understanding home-buying jargon also figured high among homebuyers’ bugbears.
But there are also advantages from a seller’s point of view, Collar-Brown argued, especially when mortgage repayments become so expensive that a quick sale is seen as the only option.
“They’d rather know that they’re going to get £250,000 on (auction) day and obtain the exchange contracts versus wanting £275,000, getting it in four months’ time, and in the meantime possibly losing their mortgage. People will take that ‘hit on the price’ for the security to see it go,” he told Mortgage Introducer.
Read more: How will the mortgage market respond to 100bps hike?
With mortgage rates for two-year fixed rate loans jumping to 6.53% this week and the Bank of England poised to increase the base rate even further on November 3, the inevitable question is whether larger numbers of properties will come up for auction in the coming months, either as a result of repossessions or because owners are forced to sell.
“We’ve already seen a spike in the last three weeks compared to normal, because it’s the certainty - that’s what (sellers) want. A lot of people will be struggling, and I think it’s going to be horrible out there. An auction is potentially an exit route that some, if not many, will take,” he said.
The most recent government data shows that mortgage possession actions are slowly recovering from the impacts of COVID, with claims, orders and warrants currently around 39%, 496% and 361% above Q2 2021 levels.
And compared to the same period last year, mortgage repossessions have shot up 1,611% to 770 between April and June.
But it’s not just homeowners under pressure to sell or buyers keen to grab a bargain who are looking at property auctions, Collar-Brown revealed.
“Private landlords are exiting the market in droves. There’s no tax benefit to them anymore,” he said. “The cost-of-living has gone up, and interest rates now for buy-to-let mortgages are crazy. We had a case recently where the bank’s criteria for lending was that the rent had to be 145% of the loan amount.
“The larger professional landlords who are less impacted by BTL rates are still buying, but those who’ve got one or two properties - what we class as accidental landlords - are going to struggle because the rates will go from 5%, to 8%, or even 10% in some cases.”
Be that as it may, there are pitfalls for unwary and inexperienced buyers venturing into the world of property auctions, and Collar-Brown’s advice is for everyone to do their due diligence before rushing in.
“Go look at the property before you even put your hand up. Whether buyers look and read the information available to them or not is another story because there are still people out there that will buy a property on auction without looking at it, visiting it or reading the legal pack, which is suicide,” he said.
“Pick your top figure and don’t go above it, because if you do, that’s when problems happen.”
