Auctions have always been one of the best barometers of live market conditions in property.
After all, lot numbers and indeed sale prices are established on a regular auction-by-auction basis, which in our case is eight times a year, thus giving an early indicator of increased or decreased activity in the market.
It also has to be said that buyers and sellers often favour what is an open and transparent environment that is ultimately based on market confidence and conditions at the time of the sale. Many sellers, such as lenders, local authorities and statutory bodies, favour selling by auction as it is considered to confirm ‘best price’.
Indeed, in some instances they are obliged to do so. Land and property being sold by local authorities, receivers and The Crown Estate, as well as assets being sold by court order, all fall into this category. While this is not always a legal requirement, it is beneficial in two ways.
Firstly, auction sale prices are considered to be a true reflection of the current market value as anyone able to bid can do so. Secondly, for this same reason, sellers who are using public funds such as local councils and statutory bodies will not receive any criticism or backlash should someone contest the motive for a sale or indeed the price achieved.
It is also important to remember that the market value is influenced by, but not – and this is critical – dictated by, the guide price and reserve. That is not to say that we don’t put a great deal of effort into setting those figures. Quite the opposite, in fact. But at the end of the day, the guide price and reserve act as an indicator of our clients’ expectations. The eventual sale price decided by the competition within the room is then a reliable figure that can be used for many purposes.
Auctions, therefore, provide an excellent bellwether of the state of the property market, so what changes have we seen and will we see in response to recent events? Firstly, it has to be said that the so-called ‘mini-Budget’ did indeed throw a cat among the pigeons. While most of the changes announced have now been scrapped – we await next week’s fiscal event with great anticipation – the reforms to stamp duty survived intact. Lifting the threshold to £250,000 from £125,000 and no stamp duty payable for first-time buyers up to £425,000, an increase from £300,000, will no doubt drive further activity in the market.
It is important to remember that the market value is influenced by, but not – and this is critical – dictated by, the guide price and reserve
Then there were former prime minister Liz Truss’s proposed ‘Investment Zones’, which are aimed at stimulating growth and promise relaxed planning restrictions and tax breaks in defined areas. As I write, it is unclear whether the zones will be forthcoming, but if they are and aren’t watered down too much, they could prove significant.
Those who already own land or property in a zone may choose to seek an application for change of use or redevelopment, or they may find it easier to rent vacant premises. This in turn could increase the value of the asset and offer a more enticing exit plan. Others will look at moving into an Investment Zone to benefit from the tax breaks and relaxed planning regulation as a way of getting an early foothold in an up-and-coming area.
Cause for alarm
Elsewhere, we have seen a steady increase in the Bank of England’s base rate over the past few months, reaching 3% at the time of writing. This, added to the confusion surrounding the mini-Budget and the lack of details around fiscal policy, has caused some alarm and does threaten to undermine the benefit from the reforms to stamp duty. Many lenders have pulled hundreds of products from the market amid a flurry of borrowers looking to fix their term for five to 10 years. Any turbulence is normally felt fairly quickly and in this case, it was almost immediate.
In the longer term, we have experienced further increases in property values during the past couple of years, with many people changing the way they live and work. As the cost of borrowing and cost of living increases, lenders and those borrowing money will be looking carefully at what kind of guarantees they need to make buying property affordable. This has a knock-on effect on those who are looking to sell, thus causing a price correction in certain areas.
In addition, lot numbers may increase in the short term then start to fall back to standard levels when things stabilise. Lot numbers often change throughout the year, and it is not uncommon to see spikes towards the end of a financial year or at the beginning. The current uncertainty will lead some to try to offload faster than they had anticipated to free up available cash ready for future purchases, while others may think we have hit the top of the market and want to maximise profits.
However, it is important to remember that traditionally speaking, both interest rates and mortgage rates are still relatively low. Auctions are a rich tapestry of buyers and sellers, some not needing finance, some seeking traditional finance and others seeking specialist auction finance. Many are motivated by commercial necessity – if they are not buying or selling, then they are not trading. Others are looking for that one-off property for themselves. In either case, the auction market has remained fairly stable and will continue to be so as long as we all take price sensitivity, when appraising a potential lot, into consideration.
We have witnessed that stability directly. Our September auction fell on the week of former chancellor Kwasi Kwarteng’s mini-Budget and there were some initial grumbles. The backlash from the announcement and then the back-pedalling created confusion for everyone on both sides of the argument. It is only natural to be hesitant in a time of uncertainty. However, it also must be said that the auction continued with the usual gusto and competitive bidding that we’ve seen throughout the past year.
What’s more, as we head into our last auction of 2022, it is clear that activity is still as strong as it was this time last year; 2021 saw a success rate of 80% from an offering of 975 lots, while 2022 is again showing a success rate at just below the same level, with an offering of 904 lots and one more auction to go this year. Given the turbulent times we are currently living through, that is heartening indeed.
That said, there could yet be bumps along the road. The property market is one of the key economic drivers for the country, so we will all be keeping a keen eye on what is said by the new chancellor, Jeremy Hunt, on 17 November. Whatever happens, however, I am convinced that auctions will continue to be the go-to medium for those looking to achieve the best price within an open and transparent environment.
After all, the competitive bidding seen at auction helps to stabilise prices, setting strong and reliable baselines. I am always reminded at times like these that property has traditionally been a mid- to long-term investment and while we may be entering some choppy waters, the desire to continue trading is still as strong as ever.
Clive Emson Auctioneers was founded in 1989 and has a sterling reputation for commitment to quality and service. We provide a high-profile auctioneering facility for independent and corporate agents, private clients and statutory bodies, giving a platform to specialist land and property auctions. Today, Clive Emson is the UK’s leading independent regional property auctioneer, with a team of expert employees working in offices across southern England.
Please contact us on 0345 8500333 or at email@example.com – we would be happy to answer any queries you may have.