The trend of property auction purchasing is mirroring that within the wider landlord sector and should be a target market for brokers with clients investing in property.
Specialist packager Clever Lending told Specialist Lending Solutions that many auction purchasers went direct to lenders and so there was a gap in the market for brokers and opportunity to ensure clients were receiving good advice.
This is particularly so given the time pressures involved and need for reliable lending. Most auctions require completion within 28 days, or for some it can be as little as 14 days.
If buyers are unable to complete the purchase there can be steep penalties and even legal action and the risk of compensating out-of-pocket sellers.
Clever Lending sales development director Paul Day noted that an increasing number of buyers could choose to buy a property at auctions, rather than the traditional sales route, and this presented an opportunity that brokers should not shy away from.
“The auction market has progressed from one which is unpredictable and only sells repossession or problem properties, to an environment that provides a quick, easy and fair way of securing or selling a property,” he said.
“There are numerous lenders operating in this space and many products available on the auction market, and as with standard residential mortgages, brokers should be encouraged to seek assistance in sourcing the most suitable finance option for each customer.”
He added: “I would urge brokers to discuss the benefits and possible pitfalls of buying properties at auctions with clients.
“They should also seek out buyers, sellers and developers who are active in this market, which could lead to an increase in their income across the residential, commercial and buy-to-let markets.”
The most recent figures show a significant dip in auction activity nationwide, with only a couple of areas seeing growth over the previous year.
According to data from Essential Information Group (EIG), the total number of lots offered in June was down 19.5% compared to June 2017, with a corresponding drop in sales of 23.1%.
Auction revenues also fell 24% from £267m in June 2017 to £203m in June 2018.
Only three areas, East Anglia, the East Midlands and Scotland, witnessed any real growth in June while all other parts of the country slumped.
EIG founder David Sandeman said: “While the numbers are certainly alarming they are perhaps reflective of the challenging market conditions and economic backdrop that we find ourselves in.
“Growing speculation about an impending interest rate rise, Brexit uncertainty and ongoing high-street woes are all factors that are likely affecting confidence among buyers and sellers alike.”
These reasons have coupled with the tax and regulation changes finally starting to hit landlords.
Blitz and sell
Together Money head of auction and professional finance Daniel Owen-Parr said the lender had noticed two trends coming through in the last 12 months.
“We’re seeing more company applications because of the perceived tax benefits as buyers have been advised by their accountants,” he said.
“And there are more purchasers who buy at auction, blitz the property very quickly and then sell that into the standard first charge property market.
“Once they’ve paid all costs it can be relatively lucrative, but less so than it used to be.”
As with much of the development and landlord market, the auction finance sector is waning in London, with much more focus on regional cities and urban centres.
Together, for example, is continuing to see year-on-year growth in the market outside the metropolitan area of London and the South East.
But the need for more investors to be professional in this market is typified by houses of Multiple Occupation (HMOs) and their particular idiosyncrasy in the market, Owen-Parr noted.
“Brexit has caused some foreign nationals to go back to their home countries, so that has freed up a lot of space in HMOs and driven down prices,” he said.
“And councils put different restrictions on HMOs and the licences needed for them, with some areas not granting any more licences, while some areas will.
“So that’s another one where you need to be a bit more professional to get involved in the HMO market now – they don’t go for the premium they may have once before,” he added.
However, for those who may be looking to take a step into this area, understanding it is a crucial step, particularly around the speed of financing required.
“You have to be careful with the lender you choose and confident they can complete on time. Make sure you find a lender who can do that,” Owen-Parr added.
“Then engage your clients because not all of them know about auction finance and how simply and quickly it can be done.”