Achieved sales at auction at lowest level for three years

The success rate for residential properties sold at auction fell to the lowest level for three years as buyers retreated from auction houses due to tighter lending conditions and greater uncertainty over the outlook for house prices, according to the Royal Institution of Chartered Surveyors (RICS).

In Q4 2007 only 57 percent of properties fell under the auctioneers hammer compared to 69 percent in the same period a year ago. 4,539 properties were sold, a decline of 9% on the same quarter in 2006, also down by 9% on the previous quarter. This has left 3310 properties unsold at auction houses as demand has weakened, a rise of over 50% from a year earlier.

The number of properties offered at auction was still close to historically high levels with 7732 properties placed under the hammer. The overall number of residential properties offered at auctions rose by 15% in 2007 whilst the number of repossessed properties rose by around 20% percent, indicating that many have struggled to service their mortgages following last year’s interest rate hikes and tougher refinancing conditions.

This trend looks set to continue as the number of repossessions could increase by a further 50% in 2008. Homeowners coming out of fixed rate mortgages will face a tighter credit environment, reduced mortgage competition and tougher refinancing conditions as banks and building societies continue to raise interest rates to recoup battered profit margins.

Uncertainty in the financial markets, doubt about the size of city bonuses and greater reliance on debt financing has led to some of the sharpest slowdowns occurring in London and the southern counties with success rates at auctions plummeting to 63% in Q4 from 80% in Q4 2006 in the Capital. The Northern Rock saga and the uncertainty of the banks’ future not only had a detrimental impact on the capital but also in the North East as property sales hurtled to its lowest success rate of 39%.

RICS economist, Oliver Gilmartin said: “Fears over further house price falls have taken some stimulus out of achieved sales at the auction house as specialist lending has all but evaporated. While lots offered at auction have stabilised, we expect a tougher year for many at the margins in 2008 as mortgage providers become more selective.

“Whilst tightening credit conditions will be most acute for those with a poorer credit history, less generous loan amounts and the introduction of some upper limits on loan advances could equally hit the mid-tier of the market, increasing the number of properties languishing on auction property books.”