Repossessions are on the rise. More and more people are finding it impossible to keep up with their mortgage payments, regardless of the support being promised by the government. Indeed, there are likely to be 45,000 repossessions this year, with the figure rising to 75,000 in 2009.
What happens to these properties once they have been repossessed? Some are sold by the lender through an agent, in order to secure the best price. However, the majority of 'repo properties' are put up for public auction - presenting aspiring buy-to-let investors some particularly enticing opportunities.
According to the Lib Dem Treasury Spokesman, Lord Oakeshott, properties sold at auction are currently fetching 23.4 per cent less than they were last year. Similarly, properties sold at auction achieve an average sale price of £130,400 - around 58% of the average market price for agency-sold properties.
Clearly, auctions could be heaven for property bargain hunters. There are, however, a number of important principles that should be remembered in order to ensure that you make the most of the opportunities offered by auction property.
In the first instance, you must do your homework. If you are a first-time buy-to-letter, you should begin by making sure that you understand the market conditions, and the risks associated with this type of investment. You may find other buy-to-let articles on this site useful for this purpose. Similarly, if this will be your first auction purchase, you should do some research to give yourself a firm grasp of the process. A good first step is to look through past lots on a property auctioneer's website, and order a few catalogues to give yourself an idea of prices in your preferred area.
Don't be scared of visiting an auction. Most are open to the public without prior appointment, and going for a 'trial run' can help you to understand how the process works. If you pick an auction that includes lots of the sort that you might be interested in, you will also get an idea of any discrepancies between guide price and final sale price.
The fact that you are buying at auction does not make a visit and survey any less important. Don't just rely on the catalogue - contact the auction house and visit the property, preferably with a builder in tow. You will need to book in quickly, as visits tend only to be available around four weeks before the auction date. If you are still interested in the property, it is vital that you have a proper survey performed. You would do this if you were buying through an agent, so why not at auction? It will certainly bump the price up a bit, but it will give you the peace of mind that you really are getting a bargain, and not a property albatross.
It is important to remember that, if your bid is successful, you will be legally obliged to purchase the property. As such, you must be absolutely sure that it is right for you, and that you have the financial wherewithal to buy it. You will be required to put down a 10 per cent deposit on the day - so make sure you have the funds available, and your cheque book with you. You should also ensure that you have your mortgage arranged in advance, as you will generally be expected to finally exchange within 20 days. As such, don't bother with auctions if you are in a sales chain - make sure that you have exchanged in advance on any properties that will provide you with the funds to purchase the auction property.
Finally, while you may make a significant saving buying a property at auction, you should remember that the costs associated with buy-to-let are still potentially high. You should ensure that you factor in sundry costs like repairs and renovations, as well as advertising your property and contingencies for periods during which the property may be unoccupied.
The increasing availability of relatively cheap auction property could well be the kick-start that buy-to-letters are craving. However, you should be confident that you understand the auction process well in advance, and are able to make the most of any potential savings.
