The regions are gaining in stature as a place to buy property at auction as prices in the London and the South East rocket. But some regions are faring better than others. Piers Wehner reports
At the end of last year a lot was sold at auction in London. It was a one-bedroom flat in the centre of Manchester on a nearly new 125-year lease. It has neutral decor, is close to amenities and the universities and would probably let very swiftly. And in 2012 it would typically have sold at auction for around £50,000.
By the latter days of 2014 nothing had changed. It had not sprouted an extra bedroom, been decked in chandeliers and silk tapestries or been magically granted uninterrupted views of the Serengeti. But it sold for £85,000 – approximately an 80% increase in value over two years.
In the auction houses of the UK, the regions – well, some of them at least – appear to be making a comeback.
Anecdotally the regions have been claiming a resurgence over the past year as the recession loosens its grip. But the story in the auction houses has not really supported that assertion.
Instead, the lion’s share of properties sold at auction continue to be within the M25, and that share has even grown from an estimated 35% in 2013 to 45% last year. If anything, it would seem that Greater London was continuing to outpace the rest of the nation, and at the expense of the regions. Indeed, in terms of the volume of lots the regions have actually decreased.
But it is the values of those lots that have started to change. “We can now say that the regions are picking up,” says Allsop’s Gary Murphy. “Towards the end of the year we were beginning to see a distinct lift in the prices people were willing to pay for lots outside the M25 and the Home Counties, in the larger cities where there is better tenant demand.”
But this is not yet a story of the rise of the regions. Many areas are not rising. The South West has, according to most sets of statistics, stagnated. Wales, according to both auction houses and the Nationwide, actually lost value.
“The comparatively high unemployment and low demand from tenants mean that it takes a long time for places outside London to recover from a recession,” says Murphy.
The North, however, is rising. Robert Limbert of Eddisons, the dominant force in auctions in the North East, believes that residential stock – particularly those properties at the lower end of the price range – are becoming increasingly popular in the Yorkshire and Humber region.
“A feature of 2014 was a definite reduction in the amount of stock coming to market, which resulted in demand consistently outstripping supply. This put a premium on the stock that did go under the hammer and resulted in many lots exceeding their advertised guide price,” says Limbert.
Partly that demand was due to first timers entering to the market. “These attracted both seasoned investors and those new to auctions who were clearly targeting property over traditional forms of investments,” he claims.
But it was not owner-occupier interest alone. “There was a real resurgence in demand for well-let stock as well as stock where value could be added through active asset management.”
On the other side of the Pennines, Cathy Holt, head of auctions at Merseyside firm Sutton Kersh, tells a similar story. She says that on her patch the appetite for buying property at auction has also grown in the past year.
“During 2014 we definitely saw an increase in the number of domestic buyers targeting residential stock, both for personal occupation and investment,” she states. Holt adds that she anticipates that trend to continue into 2015.
Savills’ auction chief, Chris Coleman-Smith, makes the same report. The North is looking strong.
In Hull a fairly standard mid-terrace house would have sold for £27,000 in 2012, according to Savills’ figures. “By 2013 they went to around £35,000. In June 2014 they are averaging £45,000,” says Coleman-Smith.
He points to similar patterns in Newcastle, in South Shields.
In Blythe in Northumberland you can still snap up a flat for £25,000, which is less than the average deposit south of the Watford Gap, but in mid 2013 they were selling for nearer £18,000.
A lot of this interest is localised. Bidders at an Eddisons or Sutton Kersh auction tend to be local. And the same is true even if the auction is down South. “A lot more people are coming to our auctions and looking to the North, that is true,” says Coleman-Smith. “But a lot of those people have come from the North in the first place. A lot are local buyers looking for something to do up and let.”
In the Cumberland Hotel auction rooms of Allsop, W1, the story is the same – increased appetite and increased values. Murphy notes that many of the people looking to buy properties in Birmingham, for instance, have come down from Birmingham to do it. Bidders from Manchester were the third-largest group, after London and Croydon.
But local bidders are starting to see competition from further afield.
“What has happened is that London has rocketed and the rest of the UK is now getting the overflow,” says Coleman-Smith. “The prices in London went up so much that anyone wanting to buy with a limited amount of cash had to look further afield.”
Some of these buyers are Londoners looking to relocate. London is too pricey, as are the traditional “London overflow” areas. Those towns and suburb-cities in the doughnut of outer London or soon to be linked by Crossrail are reaching the upper limits of affordability.
What this means is that people who would normally get a nosebleed going further north than Finchley are starting to see a land of promise at the other end of the M1.
“They want kids, they want a house and a garden and so they are looking further afield. The are moving out for the sake of affordability,” says Coleman-Smith. “That certainly helped our stock in the North, especially in Newcastle and Hull.”
Savills estimates that it has seen a 15% increase in prices across the North between 2013 and the end of 2014.
And it is not just relocating owner-occupiers. There is also a growing number of London-based buyers looking at buy-to-let investments outside the capital. Many of those, according to a recent Halifax survey, are living in rental accommodation in London, but are buying in the North of England just to get on the property ladder.
“Owner-occupiers and slightly larger buy-to-let investors are realising that if you have £100,000 you can get two properties in a great part of the North of England, whereas in London you can’t even get one,” says Coleman-Smith.
Murphy adds: “This is certainly causing prices commanded at auction to rise outside London.”
The London generational wealth thing
One factor skewing the market is what Coleman-Smith calls “the London generational wealth thing”. In other words, if you bought in Fulham in the 1960s for £30,000 and you now sell for £1.2m you can afford to give your kids a £100,000 boost up the housing ladder. “If you did the same in Sheffield, your house will only be worth £300,000, so you can’t do that.”
Either way, that £100,000 won’t get you much in London, even as a deposit. Better look to the North…
Auctions: Market insight sees trends materialise first
Can an auction really give an insight into the state of the market?
Allsop sold 1,554 properties across the country last year. Alongside the 1.2m homes sold through traditional high street estate agents in 2014, that figure is puny – around 0.1%. But Murphy argues that he is well placed to gauge what is happening in the markets.
“We are the coal face,” he says. “It starts here in the auction room, and we see the trend materialise first. So, if there is an uplift, we see it first.”
Partly that is down to the fact that there are no lengthy negotiations and fewer results skewed by capricious lenders. But also, he says, it is a gut feeling. “When you stand there and try to pull money out of people’s pockets, you get an immediate sense of whether they want to give it to you or not.”
