Last year was a buoyant one for those involved in the residential auctions market and for Allsop it was our most successful year yet. So can such a performance be repeated in 2015?
In 2014, we saw an increase in the number of high-value lots, a decrease in the number of receivership sales and demand continuing to grow. The first nine months saw exceptional house price growth, particularly in central London. The fourth quarter, however, saw the rate of growth in all regions except the North of England subside. Buyers continue to seek better value for money in the regions.
Owner-occupiers have been assisted by the government’s Help to Buy loan incentive scheme and low interest rates. Investors have benefited from improved tenant demand and rising rents. An inflationary climate has provided rich pickings for traders, particularly those working the private treaty market for onward sale in the auction rooms. Developers have been keen to compete for new-build and conversion opportunities presented by, for example, land sales by the public sector or former office buildings with permitted development rights for residential use.
Looking ahead, uncertainty surrounding the May general election is likely to have a bearing on sentiment during the early part of the year, particularly in the more prime markets. The prospect of a mansion tax has not faded completely – although the arguments in favour of its imposition have been diluted by the recent changes in stamp duty. With a top rate of 12% and a biting point of £937,500, it will be hard for Labour or the Liberal Democrats to argue that higher value homes are not sufficiently taxed.
Only 83 lots in 2014 (5.3% of the total) would have drawn a higher tax bill under the new regime. The government estimates that this year 98% of buyers will actually pay less SDLT. On this basis, we do not see the auction market being heavily affected.
Interest rates may rise this year but are unlikely to exceed 1%, particularly in the wake of falling oil prices and the consequent drop in inflation. Any influence this may have on the level of repossessions will not be noticed until 2016 or later as lenders will continue to operate a policy of forbearance. For new borrowers, following the Mortgage Market Review, mortgagees will be required to verify income and perform an interest rate sensitivity assessment before lending. This will have an impact on deposits required for purchase. The Help to Buy scheme, which to date has supported more than 38,000 households and has now been extended to 2020, will counterbalance this to a degree.
For those who have cash, or can raise adequate funding, auction will continue to be an increasingly popular way of buying a home. Private buyers will look for opportunities to add value to unmodernised properties. The auction room has become demystified over recent years. Educated bidders are now willing to embrace the process and will continue to compete enthusiastically.
London prices will continue to improve, but at a softer pace than in the regions. Outside of London, hotspots are likely to be along existing and future major commuter routes, particularly Crossrail. The larger conurbations with healthy tenant demand will also see sustained growth as occupiers, investors and tenants are priced out of the capital. A general dearth of new housing stock in the short term will push capital and rental values further.
London will continue to be a safe haven for foreign money. It remains to be seen how far the removal of the CGT exemption for non-resident purchasers will affect prices. Prime central London is more at risk, but this sector is less prevalent in the auction room. In any event, only gains arising after April this year are taxable.
Allsop held seven major UK residential auction sales in 2014, raising £421m, a 25% uplift on the previous year. Overall, 85% of all lots offered were successfully sold, against a 74% industry average.
This year’s performance will be exposed to far more positive than negative influences, but auctioneers will need to read the signs with care and insight in order to advise prudently on reserve prices. Those who do not will experience falling success rates.
Gary Murphy is a partner at Allsop
