2023: Bidding on better

Many people working within this market will remember clearly a time when selling a property at auction meant there was something wrong – either with the house itself, or the market conditions surrounding its sale. Indeed, there may be some who still see red flags, but it is high time that property auctions were properly recognised as part of the fabric of the UK market, with a growing role to play moving forward into 2023.  

Looking back 

The events of the past few years have had an incredible effect, shaping the property market in good ways and bad. One of the positive influences of the Covid-19 pandemic has to be the rise of auction sales, and the modernisation and digitalisation of this section of the industry.  

As with many other walks of life, the pandemic forced this sector to adapt to remote work. Indeed, the auction market quickly took this ‘new normal’ in its stride, moving online and – for the first time for many auctioneers – realising the benefits. Suddenly auctions were open to everyone, not just those in the know and in the right physical place.  

The lessons learned during this time have shaped the market since, with most auction houses maintaining their online capabilities even once in-person events became a possibility again.

A secondary effect of all of this was also increased awareness – as we discussed the adaptations made in this industry, ever more potential customers had auctions appear on their radars for the first time.  

2022 brought new challenges. Rising Bank of England base rates, political and economic uncertainty, and the cost-of-living crisis have affected mortgage rates, house prices and borrower affordability.  

These are problems that the market is working hard to face down, but for auction sales, they may in fact have positive ramifications.  

Indeed, in November 2022 Auction House UK reported that the year had seen a 10% increase in auction sales compared with 2021, with success rates remaining steady, and total money raised for clients up year-on-year. Meanwhile, John Pye Property reported a rise of 52% in the number of bidders compared with 2019 – a year which itself saw a surge in auction popularity. 

Looking ahead 

The factors influencing this demand are multifaceted and will continue to influence the auction market as we move into the next year.  

For example, increased house prices – which have only recently started to level off, and indeed dip – mean that it is more important than ever to reach a good deal. Deposit pots or investment funds are not going to stretch as far, and the cost-of-living crisis is going to continue to cut into people’s funds. An auction could be a way to get either a better property for the same price, or the same type of property for less. 

For those seeing the slowing of the property market as a threat, but who still want to sell, selling at auction can be a good way of achieving this, exchanging higher potential profits for more certainty of a sale – this means more properties coming to auction in the first place. This is not to mention the increasing number of properties being deemed unmortgageable, often due to the need for renovations. 

When it comes to property investment, we are all too aware of the difficult supply versus demand dynamic facing the UK market. This is a worsening issue, but by snapping up these unmortgageable properties and investing in the necessary refurbishment work, a savvy investor can take advantage of lower auction prices and increased rental values – a win-win.  

Finding the finance 

Of course, there are some disadvantages to buying at auction that will continue to be in play – with all its modernisation, there is really no conceivable way at the moment of removing the need for finance up front, which for most buyers means striking a deal with a mortgage lender ahead of time. There are numerous unknowns when going into an auction, the most obvious being the final sale price, so it takes a real specialist to be able to underwrite this kind of loan.  

Then there are the tight turnaround times. Completion time after a successful bid is generally 28 days, which means the need for fast access to funds.  

Luckily for buyers, there are few property finance sectors more capable of providing fast, flexible funds than bridging.  

At Castle Trust Bank, we offer clients the opportunity to take out a bridging loan specifically tailored for purchasing at auction, with an emphasis on speed in order to meet those tight transaction deadlines, using trusted techniques such as Title Insurance to help overcome hurdles that might otherwise slow down the process. Then, investors can shift onto a light or heavy refurbishment bridge in order to finance renovations, which could in turn help them gain a better rate on a long-term product when the work is done.  

As an increasing number of buyers look to make their property investment goals a reality, while faced by growing economic challenges, the auction finance market looks set to grow even further in 2023 and beyond.  

Anna Lewis is commercial director at Castle Trust Bank