By Emma Mahony
In the one area of the market that’s booming, brave first-time buyers are finding bargains at auction…
Grinning at his sister Katie standing next to him, Ben Hanley declares in his broad Yorkshire accent: ‘It were auction fever, weren’t it? Look,’ he says, opening up his jacket. ‘The sweat has been pouring out of me.’
This is possibly a bit too much information but Ben was excitedly explaining how he and his 22-year-old sister had just spent £35,000 on a run-down three-bedroom terrace property at auction – but not the one they had driven to London from Riddlesden in West Yorkshire to buy.
Outbid on a Victorian mid-terrace house in Keighley, West Yorkshire, which climbed above the guide price of £47,000 to £71,000, the pair switched their attention to another.
Ben Hanley and sister Katie after they’d bought a £35,000 house without seeing it
When Katie suddenly waved her catalogue in a final bid, the new property was bought straight off the page, sight unseen, and for £500 more than the guide price.
As first-time buyers at their first property sale, Ben, 24, and Katie typify the auction fever sweeping through the residential sale rooms – the one part of the property market that is really buzzing right now.
Having saved the money over six years working as a man-with-a-van delivery service, Ben does not think they can lose.
‘We’ve got time to work on the house because business is quiet, and if it’s not right, we’ll make it right.
I’d like to move in soon,’ he says.
‘We can stop living with our dad now,’ interrupts Katie, still on a high from the thrill of the sale.
Impulse buy: The Halifax house bought by Ben and Katie for £35,000, £500 more than the guide price. ‘Now we can stop living with our dad!’ said Katie
It’s no surprise that property auctions are booming. With bank accounts paying derisory interest on savings, and the Bank of England last week cutting interest rates again as well as introducing ‘quantitative easing’ – increasing the amount of money in circulation, which carries a huge risk of out-of-control inflation – buying a fixed asset such as a house makes financial sense.
‘Bank accounts are being cleared and there’s a surge in private investors looking for a better return in the relative security of property investment,’ says David Sandeman of the Essential Information Group (www.eigroup.co.uk), which collates data from auctions for would-be buyers.
And for first-time buyers it is a great opportunity. According to Sandeman, more lower-priced stock is on offer: in the past three months of 2008, 16.3 per cent more residential lots were offered for sale than in the same quarter of 2007, but they achieved only £561 million compared with £677million the previous year.
Repossessions – 75,000 are anticipated this year – are fuelling the market, providing 500 of the 3,151 residential lots in February, a rise of seven per cent on the previous year.
Auctions mean bargains: there are also no estate agents, no chain, and buyers know that the property will be theirs within a month – exchange of contracts happens at the fall of the hammer.
Graham Penny, auctioneer at London’s Must Be Sold auction, where Ben and Katie and many other first-time buyers bought last week, has noticed the influx of new faces to the rooms. ‘People know that they will find repossessions at auction, and that they are at the right price, so families are taking their money out of banks and coming along.’
Gary Mercy at Allsop, the largest residential auctioneer in the UK, agrees: ‘We sold 91 per cent of our catalogue in last month’s sale and had more than 1,000 people through the door. It is very strong at the moment.
‘I think auctions represent value for money for first-time buyers because the estate agents are still reflecting the aspirations of the sellers and not what the market will pay.’ Allsop’s highest sale in their February auction was to a private buyer attending an auction for the first time, who bought a townhouse in Kensington, West London, for £2.52million.
But the real problem for first-time buyers is arranging the finance. At auction you have to pay a ten per cent deposit with a personal cheque, and then you may have as little as 14 days to pay the remaining 90 per cent.
If you don’t complete by the allotted date, you are liable to be sued for damages, as well as losing your deposit – so finances have to be in place beforehand. Because properties at auction are often in poor condition, this makes it harder for those buying their first home – rather than a buy-to-let property – to raise the money commercially..
‘If the property is in a poor state, lenders will want mortgage valuations, and if work needs to be done, further reports on damp, electricity and other problem areas may be required, all of which can take longer than the auction period allows,’ says Ray Boulger of mortgage advisers John Charcol.
‘But you may get a “decision in principle” to borrow up to a certain amount.’ If you have about 30 per cent of the price, short-term bridging finance can work – though some banks are wary – which can give buyers time to improve the property and then obtain a mortgage.
Newlyweds Jed and Dawn Gibbs, who at a December auction paid £122,000 for a Thirties semi in Bitterne Park near Southampton, raised the money by borrowing £120,000 from his employers, Halcyon Holiday Cottages.
Marital home: Newlyweds Jed and Dawn Gibbs used a short-term loan from his employers to secure their house in Southampton
The loan has a rate of 12 per cent over six months, by which time the house, which needs considerable work, should be in a state to borrow against. Similar properties sell for up to £180,000.
As soon as they moved in they had to spend £2,000 of their £4,000 refurbishment budget on fixing the bay window. ‘But we are putting in a Sixties kitchen which we bought for £150, and we have all the original fireplaces and doors,’ says Dawn, 27.
Many first-time buyers are turning to the bank of Mum and Dad to secure their homes. At last Tuesday’s Must Be Sold auction, Amanda Weller, 50, was helping her son Andrew, 24, buy his first home.
They had been looking for a house in Kent since Amanda sold her house 18 months ago. They bought a four-bedroom detached house that went £22,000 over its guide price to £132,000, where Andrew and his wife Katie, 24, a nursery nurse, will live.
‘I wouldn’t want to go through that again, but I am happy we got a good deal,’ says Amanda, a funeral arranger, who is financing the purchase.
There is nothing to buy in the area in a similar state for less than £179,995, so we did well.’
Competition is forcing up prices
Restoration work will be done by Andrew, a builder, and he has budgeted £20,000 for a new kitchen, bathroom and boiler.
‘It’s an ideal situation to do it this way,’ he says, ‘because I can do all the work myself.’ Refurbishment of auction properties is no small matter if the buyer is hoping to finance some of the purchase by mortgage.
Danny Collins, 39, who runs a pub in Gamlingay, Cambridgeshire, with his girlfriend Alannah Hulks, 19, needed to supplement their deposit of £80,000 with a mortgage when they successfully bid for a £139,500 house in Sandy, Bedfordshire, at the Must Be Sold auction. Its guide price was £135,000.
Fortunately, it was in good condition and Danny knew that the next-door property had sold for £170,000.
‘The only thing that is a bit annoying is that the completion date is in 14 days – most seem to be 28 days,’ says Danny. ‘Fortunately we had prepared our finances.’
As more people wake up to auctions, competition is starting to force up prices. ‘Before, we might have had one person interested but now people are paying more because of competition between bidders,’ says Mark Townsend, of regional auctioneers Countrywide Properties.
‘In some instances people have been paying more than 20 per cent above the reserve price.’
Maxine Parker felt she paid over the odds at last week’s sale because she had already made an offer to estate agents Spicer McColl of £135,000 for a traditional two-bedroom property on offer in Clacton-on-Sea, Essex.
Essex girl: Maxine Parker paid £145,000 for a two-bedroom bungalow in Clacton-on-Sea, £36,000 over its guide price – and feels she paid over the odds
Maxine, 58, who divorced four years ago, ended up paying £146,000 for the house – £36,000 over its guide price.
‘I was forced to come here today because the agents told me it was going to auction anyway,’ says Maxine, whose sister is helping her buy.
Maxine Parker’s Clacton-on-Sea bungalow, bought for £146,000. ‘I was forced to come here today, the agents told me the house I wanted was going to auction’
So much for the buzz of the sale room but what about the sober reflection the day after? Is there a feeling of anticlimax? A quick call to Ben and Katie Hanley to see if they had visited their new purchase in Halifax, bought on a whim, brought an interesting response.
‘When I got there, it sunk in that I’d bought it,’ says Ben. ‘It’s a good house, I think, but I haven’t been able to see inside because of the downstairs blinds.
Do you know when I’ll get the keys?’
This, and other good questions, are perhaps worth asking before you walk into your first auction.
Tips for buying at auction
VISIT AN AUCTION
Watch an auction before bidding on a property. Solicitors and specialists in auction finances set up stalls and are useful to talk to so you understand the process.
TAKE YOUR CHEQUEBOOK
Auction houses require two forms of identification, together with proof of address, and will take a fee of about £400 on the day.
USE A SOLICITOR
Most auction houses place contracts and searches online, so involve a solicitor from the outset to check issues such as access and restrictive covenants..
VISIT THE PROPERTY
Auction houses arrange group viewings three to five weeks prior to sale. See the place once or twice, preferably with a builder and surveyor. Most auction properties are in a poor state, so you will need to include renovation costs in your budget.
