Are Auction Buyers Being More Cautious This Spring?

Spring is normally a busy time for the auction market as well as the property market generally. It is traditionally a time when the better weather encourages home owners to get a move underway, and is also often when investors and developers start looking for new projects too.

Of course, the whole climate in the property market is far from normal this year. After a buoyant few years the factors that influence buyers and investors are very different at the moment. So how is this affecting auction bidders and buyers? Is spring bringing new optimism as it normally does …. or are they being more cautious?

What affects market sentiment?

So what factors might be influencing buyers’ and investors’ decisions (and how much they are willing to pay) at the auctions this spring?

Firstly, after what many people consider was a disastrous Autumn Statement (the ‘mini budget’) the recent Spring Budget did nothing that might bolster the property market. But then again it did little to dampen it either.

The uncertain nature of the economy is another factor. The cost of living affects both buyers’ decisions and their ability to proceed with sales. It also makes investors and developers wonder what the demand will be for their end product.

After many predictions that inflation had peaked the upswing to 10.4% last month came as a shock. Likewise the 0.25% rise in interest rates. Although many experts predict these are now close to the peak actual buyers and investors may be waiting to see the proof of the pudding. However, oddly perhaps in the circumstances, actual lending rates seem to be moderating with some much more competitive deals available compared to last autumn.

The uncertain direction of the property market is most certainly another factor of course. Pundits have been predicting falling house prices for several months now. However, latest figures from HM Land Registry (based on January 2023) show a 6.3% rise in average prices over the year. The 1.1% monthly fall is negligible to a great extent.

In the commercial market however things seem to be very different. According to this report commercial values do seem to be on a firm downswing with, potentially, the bottom of the market in sight.

The effect on auction volumes

It might be a good idea to ask if current circumstances are affecting auction numbers. It does not seem to be the case – although of course most sales are arranged well in advance and it is very early in the year.

Most auctioneers have held more than one sale already this year. Numbers of lots and amounts raised have been healthy. According to our own analysis, based on the sales we track, there were around 2,900 residential lots offered last month compared to 2,255 in the same month in 2022. Auction houses sold over £376m of property and sales rates actually seem to be improving.

Thoughts from the auctioneers

So let’s take in some views from the auctioneers. Are buyers and potential buyers being optimistic as is usual in the spring or are they being more cautious this year?

Guy Charrison, Director at Network Auctions, believes that although some media might suggest the market is slowing, this does not seem to be reflected in the auctions and many buyers are actually optimistic. He tells us: “I would say, there continues to be two markets, the ‘media market’ and the ‘real market’, and they seem rather different.

“Network Auctions’ last three auctions have shown results of close to 90%. That’s good in any market and certainly doesn’t show the quieter market predicted by many. The regular buyers still want to buy and they are seeing a window of opportunity to purchase stock.

“It is true to say that financing is still difficult. But equally it is true that with higher inflation than we have seen for many years and with people not keen to leave money in the bank, the property market has been more robust than most people thought it would have been.”

But as an aside he says that buyers seem to be more cautious in one particular area of the market at least. He explains: “I would say that the most difficult properties to sell are leasehold flats without any outside space. Once leasehold properties get to the private treaty market buyers are looking at remaining lease terms of less than 100 years negatively.”

Ian Kitson, Director at Cheffins, also says that whether auction buyers are being less or more optimistic at the moment very much depends on what is being offered and also who is buying. He says: “This all depends on the asset or the property. Rare opportunities, such as land, or some refurbishments are still seeing very full prices. For example, we recently sold a single parking space in central Cambridge for over £120,000, such was the competition among buyers.

“However, some buyers are definitely being more cautious as they have concerns over both build costs and end values. Developers for example, looking closely at their profit margins, tend to be a bit less trigger happy when it comes to bidding, whereas end users looking for a very particular type of property are still willing to pay high prices.”