As property prices slump, buyers seek bargains at auction

The number of repossessed properties going under the hammer has nearly doubled in the last 12 months as mortgage lenders turf out defaulting borrowers and chase a quick sale, something the traditional housing market no longer offers.

After months of unease, cash-rich investors smell blood and the buzz has returned to the auction market.

This is the unseen reality of the housing slump. Estate agents on the High Street may be struggling to shift homes as sellers hold out for a decent price and buyers struggle to get mortgages, but behind the closed doors of the auction room, life couldn't be more different.

Repossessions are rising sharply, forced sellers are desperate, and the vultures are circling. Homes bought for £500,000 just three years ago are going under the hammer for little more than £250,000.

The vendor: the bank. The winner: the buyer. The loser: the family which lost its home, the buy-to-let investor who ran out of cash. New flats have taken a particular hammering.

David Sandeman of auction analyst Essential Information Group reckons the number of repossessed homes going to auction has nearly doubled in the past year and will keep rising as the economy falters.

In September 2007, of the 3506 homes offered at auction, 506 were repossessions, or 14%. Last month, 3583 residential lots were offered and 905 were repossessions, or 25%. Furthermore, over half the homes sold through leading auction agent Allsop are now "distressed lots".

There is a "two-tier" market within the banks, according to Paul Mooney of Savills, another big player in residential auctions.

The seasoned players such as Halifax and Abbey have seen it all before in previous slumps, set realistic prices and sell quickly as they look to get stock off their books.

Less experienced lenders, such as some of the American banks which have moved into the UK mortgage market in the last decade, often struggle to find buyers as they hold out for better prices.

"There are the seasoned repossession guys who tend to put a lot into auctions and tend to sell," says Mooney. "But there's also a new lot of lenders who are chasing prices rather than getting what they can. Halifax and Abbey
will sell most of the stuff they put on because they're more realistic and are getting what they can for the properties."

Halifax owner HBOS is putting a rash of repossessed homes under the hammer this month as growing numbers of borrowers fail to meet mortgage repayments. Among those on sale is a two-bedroom flat in Battersea bought just three years ago for £550,000 but now carrying a guide price of £290,000.

"There are a lot more repossessions going to auctions and there is no doubt about it, it is a great time to buy," says Mooney. "You get more realistic prices at auction than the local estate agent because we have to be ahead of the market price-wise."

Prices may still have further to fall, but in the auction rooms they are now closer to what many buyers regard as good value, even if the downturn in the main housing market is only just getting started.

Chris Glenn of Barnard Marcus says: "In the first half of the year there was definately a level of nervousness from buyers concerned that a purchase that seemed to represent good value for now may not in a few months' time. But if you look at the success in auction rooms more recently we have seen greater demand for catalogues, greater demand for legal documents and significantly more people attending the auction."

There is, however, no guarantee that you will pick up a bargain. The best lots are in high demand and bidding is fast and furious. "For a good lot in a good location, you're not going to be able to waltz in and get it for nothing. You will have to fight for it. With my competitors, I like to see the whites of their eyes," explains one buyer.

Allsop partner Gary Murphy says there's been a change in the type of buyers heading to auctions in recent months. Gone are the amateur landlords, many tempted by the buy-to-let boom of the last five years in search of a quick buck and now among the sellers rather than the buyers as they plunge into negative equity and struggle with mortgage repayments.

Instead, the auction rooms are full to bursting with long-term speculators and professional investors, who are cash rich and rely less on mortgage funding. When these "old vultures" are back, you know times are bad.

"There is a healthy market for residential property in the auction rooms but it is largely dominated by the professionals at the moment," Murphy explains of the latest auction.

"The rooms were full to capacity with a buoyant atmosphere from the start. This helped to allay concerns and eoncouraged strong bidding throughout each day. A thin room does nothing for confidence and deters
buyers."

Just as in previous downturns, thin is something the auction rooms will not be as the economy lurches from one crisis to the next.