19Jan2018

Auction Finance - Market Overview. Auction House UK Newsletter

The Short Term lending service offered by Bridging Finance Solutions has proved extremely valuable so far this year. Around ‘1 in 10’ of the sales we have made so far in 2011 have been to buyers using Short Term finance – that means either that we have sold 10% more lots than without it, or that the prices achieved for many of our sellers has been higher as a result. In truth BFS have helped with both – more sales and better prices, and they are an important ingredient in our formula for success. BFS have recently carried out training of auction sales teams to great effect, and I recommend that you call them in to speak to the individuals who host your open days and deal with sales enquiries – I can guarantee that your results will improve after their training.

Steve Barber, the MD of BFS and I have also spoken about the financial climate that we and our buyers face over the coming months, and at my request he has penned an insider’s view on what to expect and how best to tackle the market for the remainder of 2011. Here are his thoughts:

 

“It is my view that the property market will avoid a double dip recession but the road to recovery will be a rocky. In a very real sense property investment opportunities are greater than they were 12 months ago and demand for private rental stock is only likely to increase during 2011. However this needs to be set against the market backdrop of estimated weak economic growth of 2% which could mean that base rate will remain at 0.5% all year. This would keep house prices stable, re-mortgage levels low, plus arrears and possessions relatively low too.

The UK economy has begun a process of long term rebalancing, with public sector cuts implying a difficult employment market in the coming year. With households now seeking to reduce levels of indebtedness, I believe that we are looking at a broadly flat 2011. To put this in perspective, housing transactions which fell from a peak of 1.6 million a year to fewer than 900,000 in 2010 are forecast to be around the 860,000 mark this year.

The lack of liquidity in the market, with the major Banks having to repay circa £130 billion by the end of this year, will mean that access to finance will remain tight. However, we have seen a number of BTL lenders return to the market in the first quarter of 2011 with loan-to-values up to 85%. The strict rental vs. debt service covenants will mean that this will increase the amount of long term finance specifically available for the £50k - £150k segment of the investment market, which sits perfectly in your auction territory.  

The changing market environment has presented strong opportunities for experienced investors with access to fast and flexible finance, and we anticipate that as this becomes increasingly recognised in 2011 they will return to the market taking a long term view. Landlord and Investor confidence has certainly improved from 12 months ago, which has been assisted by a correction in capital values and subsequent higher rental returns. Traditional landlords are increasingly using bridging finance to fund auction acquisitions as their existing sources have either dried up or are taking considerably longer to process their funding applications. Indeed, it is our experience that many BTL applications can now take up to three or four months to complete.

It is unlikely that the traditional lenders will return to the small scale fast investment/refurbishment market anytime soon. Unfortunately many potential buyers are simply unaware of the alternative sources of finance available to them and are therefore simply not bidding or attending auctions. This is a slow education process and auction houses need to alert potential buyers to the funding services available, and by doing so a higher number of enquiries will convert into sales. The stigma of bridging finance being expensive is eroding and it is increasingly being recommended by professional advisors. When explained properly as a capital cost of acquiring and undertaking a refurbishment project the concept is simple, e.g. a client makes £25k from a deal rather than previously they could expect £30k with bank lending, when the alternative is not being able to fund the purchase and make nothing at all.

I believe that Auction House is on the right track, you are promoting Short Term Lending well in many areas and it is giving confidence to your buyers, achieving some extra sales and delivering better prices too.”

Steven Barber BSc(Hons) MBA. April 2011

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