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Why turning to auctions can be a good way to beat market slowdown?

11 July 2023

The slowdown of the UK housing market during the first half of 2023 has stalled house price growth, but it has also benefited auctioneers.

According to the latest Halifax House Price Index, the average house price was £286,532 during April. That is a figure a full 1% lower than the average house price from the same period last year. But while stalled prices and housing supply problems do not paint a rosy picture of the current UK housing market, significant numbers of buyers and sellers are seeing the advantages of property auctions and the mortgage offers available.

Sellers are also benefitting from the lower risk of fall-through that property auctions provide, with buyers locked into the purchase as soon as their bid is deemed successful and the auction ends. Within the current climate, auctioneers like Auction House London have experienced very successful auctions this year already.

With both buyers and sellers seemingly viewing property auctions as a good way to beat the market slowdown, we take a look at the reasons behind the slowdown and the recent successes of auctions during a difficult period for the UK housing market.

Finance and Supply Problems

The stagnation of house prices in the UK during the first six months of the year has a number of causes. The cost-of-living crisis is making a big contribution, with household finances really feeling the squeeze as real incomes weaken.

Borrowing costs are also on the rise while there is a long-term lack of supply due to multiple reasons. These reasons include more planning restrictions hindering developments and leading to a shortage of new homes.

Perhaps the biggest contributory factor to the slowdown is the tightening of monetary policy through higher interest rates.

Interest Rates and Anchored Expectations

The Bank of England recently increased its policy interest rate (Bank rate) by an additional 0.5 percentage points, bringing the Bank rate up to 5.0%. This marks the highest that the Bank rate has been since the 2007-2009 global financial crisis.

This increase is on top of elevated core inflation, which excludes fluctuating food and energy prices. There is also the annual general price inflation or consumer price index that continues in double digits.

The latest interest rate increase was necessary according to the Bank of England, as it is intended to help avoid a de-anchoring of inflation expectations. They do make a good point in that keeping the inflation expectations of workers, businesses and financial markets anchored is vital for general price stability. However, there is a risk that inflation expectations may already be too high to avoid additional inflationary pressures.

Mortgages and House Price Projections

Interest rates on loans such as those for residential mortgages usually follow the Bank rate. This means that the latest Bank rate rise will ultimately manifest in higher mortgage rates and a rise in debt servicing costs, though not necessarily to the same degree.

This immediately impacts variable rate and tracker rate mortgage holders, but should have no affect on existing fixed rate mortgage holders. The Bank rate rise will affect any fixed rate mortgage holders looking to refinance, and will of course impact any buyers applying for a new fixed rate mortgage.

The UK’s second largest mortgage lender has already declared an incoming increase of the standard mortgage rate on its variable rate mortgage product. Nationwide are increasing the rate from 7.74% to 7.99%, starting from 1 July 2023. The lender declares its rate rise as in line with the Bank of England’s Bank rate rise.

This may make it more difficult for some buyers, as well as for sellers to find buyers. However, this is exactly why auction houses have been successful despite the ongoing slowdown of the UK housing market.

Auction House Success During Market Slowdown

The recent successes of Auction House London seem in stark contrast to the current housing market slowdown. It is because property auctions provide the fastest and easiest solution for selling unwanted property, even in a climate where not much buying or selling is happening at all.

Part of the successful auctions in 2023 is down to the likes of investors and buy-to-let landlords divesting themselves of some or all of their property portfolios. One of the best ways for them to achieve this is through auction, and the recent successes of Auction House London demonstrate this.

For example, the most recent auction during the last week of May experienced an 82% sale rate. The total amount raised was an impressive £30,513,500, which is actually £644,000 less than the total raised from the auction before that in April. That auction also saw a massive 86% sale rate, which was a small improvement on the 83% sale rate from the auction in March which raised a total of £30,046,450. The first auction of 2023 in February also had a high sale rate of 86%, with the total amount raised also well over £30 million.

These numbers show a level of consistent success for property auctions that the traditional housing market is struggling to currently obtain.

If you want to invest in buy-to-let property, then it is easier than ever with Auction House London’s remote auctions. The process is simple for both buyers and sellers, so call Auction House London today on 020 7625 9007 or email for more information.

Written by Andrew Binstock

11 July 2023

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