What policy changes mean for the auction market

COMMENT Earlier this year, we at Savills released our first Outlook and Review Report, examining key changes in government policy, the Renters’ Rights Bill, and the evolving regulatory framework for investment – along with their expected impact on the auction market. Both the swift passage of the Renters’ Rights Bill and government aspirations to increase minimum energy efficient standards are likely to be drivers to bring stock to auction this year. Landlords, who despite the recent burst of rental growth, are no longer seeing the returns on their investment, will look to the auction room as a means of disposal. The requirement for our online auctions has grown year-on-year and, when paired with the evolving property landscape, has resulted in a record number of lots going under the hammer. With a tighter framework set to come into play this year, we may see more selective bidding and greater disparity between amateur investors and more professional landlords looking to purchase via this method. Excitement and expectations The report also finds that first-time buyers, downsizers, second-home seekers and private developers will still be the leading players in the auction room and that vacant single houses and flats will remain the most popular sales assets. The opportunity to add value is crucial, making realistic pricing essential to garnering interest and building momentum on auction day. A well-priced lot appeals to a broader pool of buyers and, driven by auction excitement, can often exceed expectations. Without this, sellers may struggle to offload assets –especially if facing remortgaging deadlines or financial year-end targets. The report also outlines that the Savills team expects to see institutions and corporate investors favour single family houses over larger blocks of flats and, although unlikely to buy existing units in a granular way at auction, they are likely to use the auction room as a means of disposal. We are more likely to see existing portfolios purchased privately and then pruned with the surplus stock entering the auction in individual lots. We think that these will tend to be single family houses as opposed to larger blocks of flat. Swelling supply Other trends affecting the auction market this year include: Public sector and social housing Local authorities and housing associations are likely to continue to bring to the market stock which compromises their commitments to reach net zero or meet building safety obligations without substantial investment. Risk taking Our recent survey revealed buyers are not great risk takers. Rather they will price strategically according to the level of risk. While this was felt more keenly among residential owner-occupiers, 44% of all respondents would consider a property that presents a moderate degree of risk, but not before weighing up the financial implications. Mortgagors and mortgagees We don’t expect a significant rise in stock from lenders, as tighter mortgage regulations since the mid-2010s have helped limit repossessions. Lenders’ proactive support has eased the impact of high interest rates, and fewer borrowers will face sudden mortgage cost increases. While those coming off five-year fixes will see higher outgoings, they’ve had time to prepare. Meanwhile, potential rate cuts could offer relief, and those exiting two-year fixes may even see lower mortgage costs, having already weathered the peak of higher rates. Bidders in the room will continue to respond to sales advertised on behalf of housing associations, local authorities, executors and mortgagees. We know these sellers understand the impact on demand of realistic pricing and a demonstration of commitment to the auction process. Added to this, failing REITs will continue to swell the supply of single units as asset managers and administrators seek an efficient exit for distressed stock. Despite upcoming changes reshaping the property market, this looks set to be a year of growth and opportunity for auctions. With realistic pricing key across all sectors, buyers and sellers will be required to navigate challenges in pursuit of the potential rewards. Gary Murphy is auctions director at Savills