Our New Business Manager, Scott Hendry spoke recently with Estates Review magazine about the effect of the current economic climate on the auction market. The following excerpt is reproduced here with their kind permission.

"Now that some realism has returned and the auction rooms are once again looking like a good source of below market value property, the single most important issue that will continue to affect the market is the availability of refinancing facilities for those who are in a position to make acquisitions.

"Shortly after the credit crunch hit it was the initial funds for completion that many investors struggled with. "Hunting Licences" (where a rapid draw-down facility is agreed by gearing against the equity in an existing portfolio) were never particularly popular with the banks and were frequently subject to reductions and withdrawals when the current economic difficulties began to surface. Even in circumstances where a facility could be agreed, the speed at which the funds were advanced suffered, meaning that they were often unavailable within the kind of timescales required for auction completions. Auction Finance Limited also encountered numerous auction buyers whose capacity to acquire new property was hampered by their reliance upon traditional mortgage products to provide the funds for completion, sourced either from high-street lenders or via finance brokers. When the reduction in the number of mortgages on the market began to gather pace this approach was no longer a viable option and it was not uncommon for us to receive panic calls from investors whose usual funding line had let them down at the last minute.

"Committed investors have overcome these issues via the use of auction finance to provide the capital for completion but refinancing remains difficult for many, especially those who are buying well below market value and need to refinance at full market value within three months to maximise the profitability in their acquisition. Although there are still facilities out there for buyers with larger portfolios, our experience is that smaller investors and those with imperfect credit records find that their options are currently very limited. In a market where churning properties for capital gains is still a risky business it is vital that these products are accessible in order to make deals workable and attractive.

"Despite these difficulties, the auction rooms are becoming busier. The rise in repossessions and increased demand for rentals coupled with early indications that the housing market could be nearing a floor means that the serious investors are back in the room and taking an interest. Over the past few months we have started to receive funding enquiries from clients who went quiet at the beginning of 2008 and at sales throughout the country I've spoken with people who have said they are in the process of arranging funding lines and liquidising assets with a view to bidding heavily as soon as they think the housing market has bottomed out. Many auctions are much busier than they were several months ago, not just with spectators, but with people carrying paddles. This tells me they are registered and ready to bid, which bodes well for auction sales performance during the coming months."