Property Auction Insights

Focus On: Insights into the surge in residential listings

In recent months, the property auction market has witnessed a noteworthy surge in the number of properties making their way to auction. This surge, which was reported in June, revealed a remarkable 22.1% growth in the number of properties listed for auction, with an even more substantial 32.2% consisting of residential stock. A closer analysis of these statistics has unveiled fascinating insights into the changing dynamics of the property market, highlighting a variety of reasons behind this increase and its potential implications.

The rise of residential auction listings

The question on many minds was whether the influx of auctioned residential properties was attributed to a wave of tenanted stock. Many speculated that landlords, seeking to divest their portfolios, were contributing to this surge. To demystify these claims, our team conducted an in-depth review of residential stock, categorising properties into three main groups: Dwellings (including houses, flats, HMOs, and blocks), Land (comprising land, sites, and plots), and Others (encompassing garages, ground rents, and other residential property types).

The analysis spanned across two periods, comparing January to July of both 2022 and 2023. The results illuminated an interesting trajectory in the growth of various property types, ultimately shaping the landscape of residential auctions.

Revealing the underlying trends

The surge in auctioned residential properties, often speculated to be driven by landlords divesting their portfolios, appears to have multifaceted reasons behind it. The data suggest that landlords are increasingly opting to sell properties once tenants vacate, rather than investing in costly refurbishment. This approach may stem from limitations in accessing funds for renovations or a strategic decision to avoid further financial commitment.

Mortgage terms expiring and rental incomes failing to cover mounting monthly costs have also emerged as drivers of this trend. With the inability to increase rents to match rising expenses, selling properties becomes a viable option for landlords. Moreover, potential buyers are exhibiting a preference for properties with comprehensive legal documentation, including right to rent checks and deposit scheme information, further influencing landlords' decisions, as these documents are key if a Section 21 or Section 8 notice has to be issued.

Property investors, when interviewed, corroborate these observations, reinforcing the notion that landlords are indeed divesting their portfolios. Additionally, properties struggling to gain traction in the private treaty market are finding their way to auction, particularly if owners are grappling with mounting mortgage payments and increasing utility bills, choosing a fast and secure exit strategy to avoid any further rising debts.

Navigating the perfect storm

The coming together of rising mortgage rates, slow to perform rental incomes, and the pressing need for exit strategies has created a "perfect storm." The dramatic increase in mortgage rates since the end of Q1 2022, coupled with the inability to raise rents proportionally, is pushing property owners to expedite their exit plans. The urgency to secure a stable financial future before further rate hikes compound the challenge is driving many to auction their properties.

In conclusion, the surge in properties making their way to auction, particularly in the residential segment, is driven by a confluence of factors including landlords divesting, the economic realities of mortgage expirations, and an increasingly discerning buyer market. As the property auction landscape continues to evolve, these insights provide a nuanced understanding of the market's transformation and the motivations shaping its trajectory.