The quick way to grab a bargain house (if you have nerves of steel)

Vikkie Lee, a veteran of home renovations, had no fears taking on a fixer upper. But buying a property at auction was a different story. “I never wanted to do it – it sounds so scary,” she says. “My first thought is always: “What’s wrong with it?”

Despite these reservations, last summer, Ms Lee fell in love with a country property which was being sold at auction. After more than a year of fruitless house hunting, she felt she had no choice but to overcome her nerves and go for it. “It was desperation more than anything else,” she says.

Ms Lee, a 41-year-old content creator and blogger, and her husband had already sold their previous home in Doncaster, which meant they were in a position to buy their next home in cash. They wanted to be close to family, which meant staying in Yorkshire or moving to Lincolnshire, and they wanted privacy and enough land to grow vegetables and build a workshop.

The three-bedroom 1980s bungalow they fell for wasn’t pretty and needed plenty of work, but its location, close to the Lincolnshire town of Sutton on Sea, was ideal. It was set in four acres, and with a semi-ruined 200-year-old cottage behind the house, it also had tremendous potential.

Last summer, the property’s guide price was dropped from £360,000 to £320,000, bringing it close to their budget. And when she viewed it, dispensing with a survey and instead taking her DIY-enthusiast dad along for a second opinion, she felt that the work it required was mainly cosmetic and well within her capabilities.

There followed a frenzy of paperwork, drafting in a solicitor to check over the legal details, exploring the boundaries, and calculating costs. In August, the Lees gritted their teeth and bid £300,000 for the property. They moved in a month later.

Ms Lee is now hard at work on her new home, repairing historic flood damage, clearing the overgrown land, and planning a new low-carbon heating system, all while charting her progress on Instagram (@thecarpenters_daughter).

“When we have got that sorted, I am going to go mad, ripping wallpaper off and knocking down walls,” she says. “With the cottage, it is going to be a real lifetime project.”

While estate agents have endured a bruising 12 months of faltering prices and plunging transactions, auction houses have had a busy year. In 2023, auction house Allsop sold 1,161 residential properties during 2023, with a collective value of £445m. The previous year, it sold 1,016 properties, for a total of £372m.

Auctioneer Richard Adamsons believes the bump in the volume of homes going under the hammer has been triggered by two years of rising interest rates.

Although common wisdom suggests that homes sold in auctions are repossessions or probate properties, in reality the vast majority belong to corporate investors, housing associations, and councils, which have been keen to liquefy surplus assets to help cover their rising costs.

“Rising rates had an impact on their business models,” he said.

Spring is always a busy season for property auctions, after the long winter hiatus. This year is looking particularly prolific because many organisations want to unload properties to balance their books before the end of the financial year.

Other vendors are landlords selling up in advance of the end of their mortgage terms, says Jeremy Lamb of Savills Auctions. Owner occupiers account for no more than 5pc of Mr Lamb’s vendors, and have often already tried and failed to sell up through an estate agent.

Vendors like auctions because they offer speed and certainty. A 10pc deposit is paid on sale day, and buyers then have 28 days to complete. This speed can also be good news for buyers, although it does pile on the pressure.

Sale catalogues are generally published two-and-a-half to three weeks before a sale. Lots come with basic property details and pictures, plus searches and title documents gathered together in a legal pack. But buyers don’t have much time for viewings, surveys, and conveyancing.

“Without question it is quite quick,” says Mr Adamson. “The amount of due diligence you want to do will depend on your appetite for risk, but time is against you. And once the hammer falls there is no going back.”

If you can handle the risk factor, the obvious reason to buy at auction is the hope of bagging a bargain. Auction properties are listed with a guide price, which is often appealingly low. “We list things probably for less than an estate agent to motivate people to bid,” says Mr Lamb.

But guide price is not the end of the story. Auctioneers also agree a confidential reserve price with the vendor. This represents the  lowest sum the owner will be willing to sell for and the figure may be higher than the guide price.

Andrew Binstock, of Auction House London, recommends a maximum divergence of 10pc between guide price and reserve price. “Different sellers have different tactics,” he said. “Some will set the same reserve and guide price, to avoid messing around, but 10pc is the worst case scenario.”

Beyond vendor expectations, the key factor whether you can get a home for a steal is how much competition you face on sale day. A lone prospective buyer will have the field to themselves; two or more can trigger a bidding war.

The most competitive lots tend to be freehold houses in the South East, says Mr Binstock. “Particularly if there is a sense of ability to add value.”

There will, however, be less competition for pricier lots. “High end stock is always in trouble in a slow market,” he adds. “The £1m-plus prime kit in tip-top areas is harder to sell.”

Competition for flats is harder to predict. Last year, investors snapped up well-priced properties in the north of England, where rental yields are highest. Elsewhere, the field was reasonably clear for brave first-time buyers looking for good value fixer-uppers.

Then there are the wild cards, the romantic wrecks and one-off buildings, for which the sky can be the limit. Last year, John Pye Auctions sold a dilapidated former mortuary, complete with embalming room, in Leek, Staffordshire, for £137,000, against a guide price of £55,000. Several bidders had plans to transform it into a spooky Airbnb.

Auction buyers who require finance can, in theory, raise a conventional mortgage (and rates are no higher for auction properties than any other), but the timeframes involved are often beyond the snail’s pace service offered by high street lenders.

“You really need to get an offer on a table before you bid,” says Ray Boulger of broker John Charcol. “The problem there is you don’t know whether you are going to get the property, so you may end up having to get several surveys done [to secure the mortgage] on properties you don’t end up buying.”

The other option is short-term bridging finance. These can usually be arranged within four weeks, but the fees and rates are unappealing. Arrangement fees will usually be around 2pc of the total cost of the property and interest is charged, monthly, at around 0.7pc (or 8.4pc per year).

Despite this, Mr Boulger thinks bridging loans can stack up since they are, by definition, short-term arrangements. Not only do you avoid the headache of trying to rush a conventional mortgage through, but if you use bridging finance to buy and renovate a property, increasing its value, then when you are ready to remortgage your loan to value ratio will be lower, giving you the chance to access better rates.

“It can work out to be good value,” he adds.

Another calculation buyers need to make is on buying costs. Most firms expect the vendors to shoulder the bulk of the cost, says Mr Binstock; he charges them 1pc to 2pc. Many firms charge buyers a flat administration fee, usually around £1,000 plus VAT, although some charge sellers a percentage of the selling price.

Mr Binstock feels the first half of 2024 will be challenging for auctioneers, not in terms of the number of homes being sold, but in what buyers are willing to bid for them.

“It is a buyer’s market at the moment,” he said. “But if interest rates stay where they are, or even go down, and inflation continues to drop, we could see prices start to come up again by the end of the year.”