Trends for Repossessions at Auction

The news is grim. The property bubble has burst and the wider economy has shrunk. Property values have plummeted and no-one knows how far they will fall. The credit crunch has paralysed the securitisation market. Lenders exposed to toxic sub-prime debts refuse to lend despite billions of pounds of taxpayers’ money being injected into the banking system to stop it collapsing. Millions of borrowers whose bargain two and three-year fixed rate mortgages have now come to an end are finding that they cannot remortgage.

There is an aversion to risk. Whereas 100% and even 125% loan-to-value mortgages were commonplace as the market reached its high watermark, 60% LTV is now the norm. Consumers without deposits who desperately grasped the property ladder in the hope that house prices would continue to spiral are now struggling to hold on as they are hit by the double whammy of collapsing prices and a lack of mortgages. Some are losing their grip.

Despite the recent base rate cut and government pressure to get lenders to extend grace periods for mortgage arrears, the Council of Mortgage Lenders predicts that repossessions will rise to 45,000 by the end of 2008. Some pundits think this is a conservative estimate. Tony Ward, chief executive officer of Home Funding, thinks 90,000 is closer to the mark and with 170,000 household already in arrears according to the CML, he may be right.

Repossessed Properties

Repossessed properties are usually sold in property auctions. The number of repossessed homes up for auction soared by almost 300% between H2 2008 (second half of the year) and the same period in 2005, says Essential Information Group. The auction information provider's data shows that they rose from 799 to 3,102 and this is simply the quiet before the storm.

But the bad news for lenders is that asset values are falling and this is being reflected in the prices they can achieve. According to research for the Liberal Democrats, the average price of properties sold at auction fell by 18.7% between Q2 2007 and the same period this year, an average fall of £32,000 from £170,757 to £138,857.

It was quite different a year ago. Property auctions have a long-term reputation as a place to find bargains but as the property boom reached unprecedented heights auction houses were packed with eager investors keen to pay over the odds to boost their buy-to-let portfolios. Now they are empty as no-one can be sure what constitutes a good price and there are fewer mortgage deals around to do business with.

Bridging lenders that provide the short-term finance needed to buy properties at auction are still in business but such loans are only stopgaps and need to be replaced by less expensive residential mortgages almost immediately. The mortgage drought has hit the auction market too.

Economic Crisis

So in times of economic crisis repossession levels spiral. As a result auction sales spike but not many are willing to take the punt as prices are falling so vertiginously. Those who would like to gamble can't source the finance, although investors with deep pockets and ready access to cash could clean up. Lenders will be out of pocket and tens of thousands of Britons will lose their homes. In the credit crunch there are no winners.