The Buy-to-let industry which has sprung up over the past 30 or so years has traditionally involved financing property with the hope that there will be some form of capital increase in the value of the property along with a modest incremental income from the rent that the property then attracts. The rental income that is earned on the property needs to cover the mortgage costs and any remedial maintenance that might have to be performed, along with the legally required undertakings such as gas and electrical inspections and certifications.
Back before the mid-eighties the buy-to-let market was predominantly populated by wealthy self-financed professional landlords and commercial companies. Private individuals found it very hard to gain access to the resources required to search-out, analyse and purchase properties for the sole purpose of renting out and providing equity in later life. In fact, as a concept, this didn’t really enter into the minds of the general population until the late eighties. The introduction of the Housing Act in 1988 gave rise to a whole new set of products from the banks that afforded new opportunities for the private landlord. Assured Shorthold Tenancies were the catalyst that gave the banks and new landlords security in knowing how long tenants were going to be in their properties so landlords could formulate budgets and plan for the future.
Many products were bought to the market by the financial institutions starting in the mid to late nineties and early noughties and this increased with time as the appetite grew for buying houses as an investment. Subsequently, many landlords found themselves in negative equity when the downturn happened in 2007. The financial institutions suffered from widespread depreciation in their stock price and a large depletion of their reserves due to the burden of the sub-prime market collapse. This meant that previously easily accessible products were now either withdrawn or changed so that the rules of entry were strengthened to an extent that excluded a large percentage of potential buy to let players. Current products now usually require 25% deposits with the range of products increasing and the interest rates becoming more reasonable when the deposit amount gets to 40%. Buy-to-let mortgages have interest rates which are usually slightly above private mortgages and bank loan offerings include interest only and tracker options.
The housing market has shown steady growth in house prices ever since ownership of private dwellings became popular in the late 1950’s. There have been times when prices have risen more rapidly creating bubbles that ultimately have to burst but the general change in house prices is that of an upward trend at a greater pace than the rate of inflation. The financial crisis of 2007-2009 was no exception – although most regions of the UK saw a flattening off or downturn in house prices they have recovered subsequently back to modest growth.
In the late 1980’s bank deposit rates reached heights of 15%. Ever since then deposit rates have declined to ultra-low level rates in 2016. Pensions schemes have somewhat tracked deposit rates when it comes to return on investment percentage decline. It is this fall in return on bank deposited savings and monies invested in pension schemes that has fuelled the buy to let market with private individuals re-investing pension funds in bricks and mortar hoping to outperform pension fund and bank saving rate performance.
There has been widely acclaimed correlation of the increase in buy-to-let property ownership in the UK and the rise in house prices and rental costs. In an attempt to combat rising house prices, the government has bought in regulations to limit tax relief on buy-to-let mortgages. Although some think the increased cost for landlords will drive them to hike rental values in a bid to keep margins in check.
Overall property has proved to be a reliable and consistent investment vehicle for many private individuals over the past 3 decades and is set to remain a popular way for some to supplement or completely replace their pension portfolio.
House auctions can be an exhilarating experience if you know what you’re looking for and you have the budget to bid competitively. House auctions can also be daunting if it’s a new experience. If it is your first time at a property auction, don’t let it overwhelm you. Make sure you give yourself plenty of time to prepare, research your options and ensure you know where you are financially before embarking on the bidding process.
So what should you look for at a property auction?
Have an idea of locations before you embark in the auction process. A property may seem financially appealing but might not always hit the mark when it comes to location. If for example you’re looking to purchase a 4-bed family home it’s always a good idea to check local schools, transport connections, and area crime rates. The local council should provide this on their website.
It’s easy to get caught up in the excitement of house auctions without keeping in mind the market value of the property. Have a price range in mind and set a maximum you’re willing to bid. Before attending any house auctions, check the history of the local market place – what’s the average house price in the area you are looking to purchase? Whilst buying a property at auction may feel like a bargain at the time, don’t pay over and above the market value of the property as you’ll struggle to generate a return on investment, especially if you also need to invest in property renovations.
Whilst it could be money lost, it’s worthwhile approaching a Chartered Surveyors to survey the property prior to embarking on bidding at house auctions. It’s a given that some bidders will avoid this part of the process to avoid the additional cost but in the longer time it could say you from making an expensive mistake.
The majority of properties available to purchase at house auctions will have a legal pack. You should obtain a copy of this and seek legal advice prior to the bidding process. Your solicitors will also need to see the property’s listing in the auction catalogue.
So you’re looking at buying a property at auction but you’ve never been before. For first-timers who are new to buying at UK property auctions, it can be a daunting experience. Auction Houses are often crowded and auctions themselves can be fast-paced. It’s not unusual to get caught up in the moment and more often than not find you’ve paid more than you wanted to for a property that’s less than desirable for what you’re looking for.
So how should you buy a property at auction?
Research before the property auction
Find the right Auction House for the area you are interested in and study the properties within the Auctioneer’s catalogue. Once you’ve decided on the properties you are interested in, be sure to arrange a viewing with the auctioneer prior to the auction date. You usually have around 4 weeks from when the property is published in the catalogue to the auction date. When viewing, remember to keep an open mind, in the majority of cases properties for sale at auction are not always in a great state. If you can, take a builder with you to the viewing as they should be able to give you a good indication of costs for work that needs to be done which you’ll need to factor into your overall budget.
Consider a home survey
Home surveys will cost you, but if you are serious about bidding at a property auction, consider having a home survey conducted on the property first. There would be nothing worse than winning a house at auction to then discover it’s condemned.
Read the property legal pack
More often than not, auctioneers will provide legal packs on properties in auctions in the UK. This will include everything from the title deeds to seller’s information forms and fixtures and fittings details. Again, if you’re able to seek legal advice through a solicitor prior to auction it would be advisable, to secure you against any hidden loopholes.
Make sure your finances are in order
A ‘mortgage in principle’ will need to be secured prior to attending the auction if you need a mortgage to purchase the property. As soon as the hammer falls you’ll have to pay 10% on the day and then usually the remaining amount within 28 days. Make sure you know what you can afford and avoid getting caught up “in the moment”. If you’re not able to provide the funds there is a risk that you will have to cover the costs of re-auctioning the property along with any shortfall if the property is sold for less than what you won the property at originally.
Keep calm and arrive early
It’s worth attending a few auctions prior to attending as a buyer, to help you get a feel for how the auction process works and the atmosphere. It can be quite intimidating if it’s your first time to a property auction. Make sure you arrive early to get a seat. Remember, though, you can also bid at property auctions via the telephone.
Remember to take proof of identity with you
If you secure a property at auction you will need to pay a deposit on the day. You will also need to have two forms of identity with you such as a passport, drivers licence and/or utility bill.
Stick around at the end of the property auction
Sometimes, and only sometimes, if a property does not reach its reserve price at auction it’s not the end of the game. A seller may be open to offering the property to the highest bid after the auction has closed. So if you’re really keen on a property but lost out, approach the auctioneer or seller after the auction to see if some negotiating can be done.
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