The number of residential properties offered at auction rose by 32 per cent in Q2 2007 and RICS believed the increase was pushed by repossessions, as affordability conditions deteriorated following interest rate hikes.
In the second quarter of 2007 there were 5,120 residential properties sold at auction, the highest number of sales in over two years and a 22 per cent rise on the previous quarter. Rising interest rates in 2007 have increased the number of repossessions which have been showing up in the number of lots offered for auction. Residential lots offered at auction should continue to pick up with the RICS estimating that repossessions could rise to in excess of 45,000 in 2008, amounting to 124 repossessions per day.
The highest concentration of auction activity took place in the North West of England, where 826 properties were sold. The North West has seen the biggest quarterly pick up in repossession orders of any UK region and has also witnessed the largest number of repossession orders outside London six months prior, which may be now materialising into actual repossessions. Merseyside previously saw a particularly acute rise in growth in repossession orders during Q4 2006 rising by 60 per cent on the previous year.
There were 1,228 commercial property lots sold at auction, an 18 per cent rise on the previous quarter. The highest concentration of auction activity took place in the South West but only 49 commercial properties were sold at auction in London which saw the lowest number of properties offered for sale in a year. RICS surveys show that the retail market has rebounded in the capital which may have reduced the number of repossessed secondary properties.
RICS economist, Oliver Gilmartin, said: “With the full impact of interest rate rises in 2007 yet to filter through into higher mortgage costs we continue to expect a rise in the number of homes going under the hammer into 2008. The auction house will continue to a quick means to foreclose mortgages where properties have been repossessed.
“Encouragingly, the annual growth rate in repossession orders has eased back in 2007 having risen quite sharply during the back end of 2006. However, RICS estimate that repossessions will continue to climb higher into 2008 and could exceed 45,000, a rise of 50 percent from current annualised rates.
“The commercial property market may also see a rise in lots offered at auction as tougher conditions return to the high street as consumers tighten their belts."
Commenting on the figures, Robert Bryant-Pearson, chief executive of Allied Surveyors, said: “The rise in the number of repossessed houses is a worrying trend as these houses typically get sold below true value to investors and speculative buyers rather than owner occupiers. Too many of such sales can destabilise a market particularly in poorer urban districts. However, the number of repossessions are still relatively modest in proportion to the total number of house sales transactions and thus should not cause undue concern at this stage.
“I fear that in future, repossessions will not just be a function of high interest rates or economic downturn but a feature of ordinary life, dependent upon personal circumstances. With housing costs taking such a high proportion of net disposable income, the ongoing misery hanging over the heads of millions of families throughout the UK looks set to continue, especially as the market has not yet felt the true effect of the 2007 interest rate rises.”
