From The Times

July 3, 2009

Bidding war breaks out as the housing market shows signs of recovery

Auction houses are reporting house prices are climbing but does this signal that the property slump is over?

Judith Heywood

Can the property market really be all slumped out? Unexpected indications that the worst of the price falls may be over include reports of newly emboldened buyers bidding it up in the auction room. This is not merely bottom-of-the-barrel bargain hunting. Six months ago, auctions were the preserve of steely investors with privileged access to cash and a taste for unprepossessing but rentable repossessions. But now auctioneers report that fewer distressed sales are ending up in catalogues and bidders include a healthier range of potential buyers — not only property companies and buy-to-let investors, but also owner-occupiers, even including those elusive first-time buyers.

Gary Murphy, of the auctioneer Allsop, has discerned a measure of urgency as house price indices begin to record some growth. He says: “Now people believe that the market has stabilised and unless they buy the available stock, it will have evaporated by the end of the year.”

Successful buyers remain united by their access to cash, as lenders remain reluctant to lower demands for sizeable deposits or high income multiples for mortgages. But with interest rates yet to edge higher, the cash-rich are shunning paltry savings accounts in favour of real estate.

Rents are reported to be falling in some markets, as landlords feel the chill wind of more potential renters in unemployment. But David Sandeman, of the Essential Information Group (EIG), which tracks auctions, says: “You can get a yield of 8.6 per cent on a rented property, or put your cash in the bank and earn 1 per cent.”

And auction attendees are buying. Data from EIG suggests that the average sales rate at auction has risen from 55 per cent in August to 69 per cent now. Some auctions have hit more than 85 per cent.

These figures are not being achieved through knock-down prices. Savills reports that buyers are now less intent on securing a below-guide-price deal. Now 96 per cent of Savills properties are selling above the guide price — typically about 20 per cent above. Christopher Coleman-Smith, head of auctions at Savills, says: “Sentiment in the auction room has turned since October, November and December. A lack of supply is underpinning prices, with some lots seriously outperforming expectations.”

Take Greenacre Close, a street of terraced houses in Northolt, northwest London. The names of nearby streets — Field End Road and The Farmlands, to name two — may give a rural impression, but Greenacre Close is deep in London’s suburbia, near Harrow. Homes are small but a share of green space remains and the Tube — and jobs elsewhere in the capital — are close by. Two unmodernised properties here sold for £152,000 and £159,000 in Savills’ December sale. Little more than six months later, homes on the street sold for £175,000 and £176,000.

In the same auction last month, an end-of-terrace property — divided into four flats — at 119 Camden Road, in Camden, North London, sold for £813,000, more than 54 per cent higher than its £525,000 guide price. Likewise, there was strong demand for 174 Shakespeare Crescent, a three-bedroom Victorian terrace in East Ham, East London. Bidding reached £227,000 — 22 per cent above the catalogue price of £185,000.

Owners are again becoming more willing to go to market with landmark properties. Allsop’s next auction, on July 14 and 16, includes charming cottages in Kennington, South London, and Woodstock, Oxfordshire. But the most intense interest is expected to be directed at an unmodernised apartment on Cadogan Place in Belgravia, Central London. The owner of the maisonette, which is close to Sloane Street, will be among the few with access to Cadogan Gardens. The guide price has been set at £1.4 million to £1.5 million.

But premium properties such as Belgravia flats cannot disguise that, while the bottom of the market may appear to be in sight, it is too early to say whether this good mood will evaporate over the summer.

Richard Donnell, of Hometrack, the property data company, warns that a glut of properties on the market could dilute any price gains. While the Council of Mortgage Lenders has revised its forecasts to predict fewer than expected repossessions this year — 65,000 rather than 75,000 — David Sandeman, of EIG, believes that many market-subduing distressed sales may have been merely delayed.

With the Government applying pressure on banks to avoid repossessions, it now takes up to 12 months for a repossession to appear in the sale room, up from six. If more such homes appear in auctions, will there be enough demand from able buyers to absorb them?