Distressed Sales
All auction houses report a rise in the number of repossessions offered this year. However, at the time of writing, sales success rates for the first half of 2008 have fallen to an average of 59% (Allsop 82%). The number of lots actually offered (as opposed to sold) at auction is therefore significantly higher. Graph 3 shows that the number of distressed lots offered at auction has risen substantially in the last three years, from a low of 245 in Q1 ’05 to 1,513 in Q2 ’08. The recent upward curve is seen to be rising at an increasing rate.

However, auction represents an increasing proportion (albeit still small) of the overall market. From a low of less than 1% of all recorded Land Registry residential transactions in Q3 ’02, auction as a favoured method of disposal has more than doubled its share of the UK housing market, delivering over 2.3% of all sales in Q2 ’08.

21% of all residential lots offered nationally at auction in Q2 ’08 were distressed (Graph 4) with the main London auction houses offering the lion’s share (between 50% and 60% of Allsop’s recent catalogues comprised distressed lots).

Despite the rapid increase in numbers of distressed sale lots, a significant proportion of repossessions offered at many auction houses remains unsold. This is largely due to overpricing in an increasingly weak market. We anticipate that the success rate will improve as lenders face up to the need to price attractively to achieve results in the face of the inevitability of rising numbers of loan failures and increasing net monthly possessions over sales.

Graph 5 breaks down the increase in distressed lots into 12 geographical areas. The highest numbers are located in the South East Home Counties and the North West whereas East Anglia, Scotland and Wales to date seem to be least affected. London has seen the smallest rise in distressed lots between the periods Q3 ’06 to Q2 ’07 and Q3 ’07 to Q2 ’08 +14%.

Expressed as a proportion of the population in each of these regions, the highest numbers of repossessions offered at auction have been in the North West (12.5 per 100,000) and the lowest in the North West Home Counties (4.5 per 100,000), the South West (4.6 per 100,000) and Scotland (1.6 per 100,000 but from a small sample).

Graph 6 shows the proportion of distressed lots offered by property type since Q1 ’05. Types examined are houses, flats and investments (assured shorthold and regulated tenancies only). In every quarter, it is noteworthy that distressed flats represent a significantly higher proportion of lots than houses, slightly more than double over the period. (In Q2 ’08, 38% of all flats offered at auction were distressed). Both categories have followed a similar pattern, peaking in Q4 ’06 and exceeding that peak in Q2 ’08 - with further rises predicted in the second half of 2008. By contrast, the proportion of distressed investments has remained consistently low over the period and represents only 1% of all distressed lots offered in Q2 ’08.

Graph 4

Graph 5

Graph 6