| Rising from the financial ashes: cheap buy-to-let homes |
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| 29 October 2008 | |
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Not everyone is suffering from the financial downturn. In fact there are a growing number of canny investors opting to use it to their advantage by buying cheap - and potentially repossessed - properties at auction.
Morals aside, the financial motivations of getting into property investment now are clear. Although the current headlines are focusing on property price falls – according to figures from Halifax for example, the price of the average home is now 12.4% less than it was this time last year – bricks and mortar have still rocketed in value from 10 years ago when an average home cost just £66,366. And even the staunchest of pessimists believe that, in the long term, property will rise in value again.
That’s why an increasing number of landlords are turning to good old-fashioned auction houses in a bid to pick up a cheap deal. According to buy-to-let broker, The Money Centre, 56 per cent more landlords are now considering auctions while more than 10 per cent have already bought at auction this year. Auctions are the most ‘public and honest evaluation of the value of property at any given time’, according to auctioneer and Fellow of the National Association of Estate Agents, Charles Smailes. “You can see the whites of people’s eyes,” he says. But, unless you know what you are doing, this can be a more nerve-wracking than reassuring experience. “This is why auction novices should always visit an auction first so it’s less daunting when they come to actually bid,” advises Gary Murphy, partner at Allsop – the UK’s largest property auctioneers. But is just one part of a lot of homework you will need to do if you are considering buying an investment property at auction. So what do you need to know? The ins and outs of auction In legal terms, buying a home at auction is just the same as if you were buying through the conventional method of ‘private treaty’; you spot a property you want, you obtain a mortgage against it, carry out a survey; stump up a deposit and other costs like stamp duty – and you buy it. It’s the processes of each stage that is different. For example, rather than look in a local estate agent’s window, you will need to request a catalogue of property – known as ‘lots’ – from the auction house some weeks in advance. Alternatively, you can see what’s available online from The Essential Information Group at www.eigroup.co.uk. Larger auction houses carry property from all around the country while if you go to a local auction house, stock is more likely to be local. When you find a property you like, rather than organising a viewing with an estate agent, there will typically be a two-week block during which all interested buyers can take a look inside and out. If you need a mortgage, your lender will organise a valuation to be carried out at this point and you may want to commission your own survey on the property to check it is structurally sound. You should then obtain a copy of the property’s legal pack from the auction house, which carries all the information you’ll need about the property upfront such as title deeds and searches – but not a survey or valuation. “You should instruct a solicitor to go through the auction pack and contact the vendor’s solicitor in advance of the auction,” says Murphy. Going, going… Knowing what to bid comes from setting a maximum budget and, unless you are lucky enough to be a cash buyer, you will have to arrange mortgage finance for this amount in advance. “It’s easy to get carried away in an auction environment but if you don’t have the right funds agreed, don’t put your hand up,” says Murphy. This is very good advice. At auction, as soon as the hammer (technically referred to as gavel) falls, it amounts to an exchange of contracts. So, just like when you buy privately, at this point you will need to pay a deposit. At an auction this amounts to a minimum of 10 per cent of the final sale price – but if you have bid successfully for the property and don’t have sufficient funds, this deposit will be lost. After the point of exchange, you will need to complete within 28 days. If, for any reason, you fail to complete within this timeframe, you really have bought a one-way ticket to trouble. Auctioneer, Smailes says: “Not only will you lose your 10 per cent deposit it is likely you will have to cover the costs of re-selling the property as well as any shortfall between the price you agreed and the final selling price.” He adds that you are also likely to be charged interest on a daily basis from the would-be completion date to the date the property is sold in the region of four per cent above the current lending rate of clearing banks. Assuming that a disaster like this has been avoided, there are still fees to consider. While fees to the auction house are covered by the seller as a percentage of the sale price, successful buyers will have to pay an administration fee of between £200 and £300. However, for what you may have saved on the cost of the property – experts estimate final auction sale prices are around 30 per cent less than on the open market – this will seem like a drop in the ocean. Tag this article :     |
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