Property auctions in the UK have soared in popularity, as one of the unforeseen side effects of the pandemic. Online auctions and the stamp duty holiday are driving more buyers and sellers down this faster route. So is it for you? Article by Nick Green.
Are Brits abandoning the estate agent for the auction house? This year nearly 40% more property by value has been sold at auction, compared to 2019. Leading provider Auction House has enjoyed a record October performance, having shifted £65m worth of property in that one month alone, while John Pye Property saw transactions more than double between May and October, compared to the same period last year. Other auctioneers are reporting similar surges in public interest – Robinson & Hall has seen its success rate rise from 8 in 10 properties sold to well over 9 out of 10.
The British public are fast waking up to auctions as an alternative route to buying or selling a property. And intriguingly, it looks as if the Covid pandemic may be at least partially responsible for this change in attitudes.
Property auctions – an accelerating trend
The rising popularity of property auctions in the UK isn’t new. Buying a home through an auction is common or even the norm in some countries (e.g. Australia), and in Britain interest has been steadily growing over recent years. In 2019 there was a substantial surge of around 20% in the number of auction sales, according to figures from the Essential Information Group, with total value up nearly 30%. But at the start of 2020, Gary Murphy of Allsop observed that the property market as a whole was stagnating, with a detrimental effect on the number of auctions. He said, ‘Supply to the sale rooms of residential auction houses has largely been driven by those who cannot, or need not, wait to sell. Those who have had the ability to do so have generally elected to hold on to assets.’
Few at that time will have expected the auction market to suddenly grow again by record amounts. So what changed? Of course, everything did. The Covid pandemic continues to have many unpredicted consequences, and one of them seems to be that interest in sauctions is now growing faster than the rest of the property market. The reasons for this are at least twofold.
How did Covid trigger a surge in property auctions?
The first and most obvious reason is the shutdown of the property market during spring 2020, followed by the stamp duty holiday to get transactions moving again. Sellers and buyers alike rushed to take advantage of the potential savings on offer, but the average property transaction takes around six months. Therefore anyone starting the process later than 1 October is racing against the odds, and even those who got in sooner can’t afford to dawdle.
The record figures reported by Auction House for October now start to make more sense: many sellers, realising they were ‘on the clock’ from a stamp duty point of view, began to look for a faster way to sell than the traditional estate agent route. Auction sales typically take far less time than estate agent sales (around a third of the average time, and can be even quicker than that).
The second, perhaps less obvious reason for the rise in auction uptake is the Covid lockdown itself. Traditionally property auctions have taken place in large public venues, requiring some effort to attend and also being potentially intimidating and bewildering for newcomers. But the lockdown in March has forced auctions, like so much else, to migrate online – opening this world up to a host of more introverted, less experienced potential buyers in search of a bargain or a quicker purchase.
Charles Lovell of Robinson & Hall believes this has been a significant factor. ‘Now anybody can just log on and watch the auction,’ he says. ‘That can draw them into considering auction as a means of purchasing a property.’ The figures bear this out, with rising numbers of participants at the average auction since March – John Pye Property has seen a rise of 52% in the number of bidders compared to 2019, some of which may be due to online auctions feeling more accessible.
The demographics of bidders also appears to be shifting. Historically, UK auctions have appealed more to investors and property developers – those who may want to ‘buy a wreck and do it up’ – rather than those seeking a home of their own. But this imbalance has reversed during lockdown, as wary investors hang back while would-be homeowners rush to take advantage of the stamp duty holiday.
Is a property auction a good way to beat the stamp duty deadline?
Now that the end of the stamp duty holiday is much closer than the average completion time of typical house purchase, it will be no surprise if the rush for auctions becomes a flood. An auction purchase can complete in under 28 days (the traditional method) or under 56 days (the modern method). So a buyer/seller could potentially still beat the stamp duty holiday deadline with an auction as late as early March 2021.
Both of these routes, however, depend on having a mortgage offer either ready to go or agreed in principle. The traditional, faster auction method requires a 10% deposit as soon as the auction complete (contracts are also exchanged immediately). The modern method involves a smaller, non-refundable reservation fee, and you don’t exchange contracts immediately (so there is still a chance of the deal falling through).
What are the other pros and cons of property auctions?
Besides speed, there are some other advantage of property auctions for both buyers and sellers. However, there are downsides and risks too.
- You might find a better bargain (or achieve a better price) than you would via the traditional route
- There’s less risk of the deal falling through, and no long drawn-out process of offers and counter-offers
- The whole process is generally more transparent
- Usually you’ll need to have a mortgage deal ready to go, so talk to a mortgage broker first.
- It’s a big decision made very quickly, and there’s no backing out – so it can be stressful.
- You’ll need to complete your survey (and any other due diligence) on the property before you bid on it, and if you’re outbid then this up-front cost will be wasted.
Buying or selling at auction isn’t necessarily any easier than going via an estate agent, but it is undeniably quicker – and concentrates all the challenges into a far shorter timeframe. It may therefore be a viable route for anyone seeking to benefit from the final months of the stamp duty holiday. A mortgage broker can be a huge help here – not just in terms of securing the best mortgage deal up-front, but for general advice on the process itself.