Buying a repossessed property
Thursday, 27 August 2009 07:05
The property may have hit bottom at the start of the year, but there are still bargains about to be found.
Buying a repossessed property - traditionally at auctions - has often been snubbed by buyers, not wanting to profit from someone else's misfortune.
However, there are bargains to be had and these need not be limited to buy-to-let investors.
Data from whitehotproperty.co.uk, which specialises in repossessed properties, sees an average repossessed property selling for 6.4 per cent below the average, so no vast discounts, and homes for under £10,000 are about.
Properties are coming onto the market from a number of sources, from those overstretched in the buy-to-let boom, homeowners losing their homes and home builders who have bought properties as a part of part-exchange deals.
"It is a sad situation that recession has hit a lot of people," says Dominic Toller, managing director of new website Property Earth, which specialises in listing chain-free properties.
He explains properties are being repossessed as landlords are finding investments are not self funding and there are people who have overextended themselves to buy.
Where to find a repossessed property?
Traditionally repossessed properties were the preserve of the auction house.
However, more recently banks and building societies are using estate agents - in a bid to push for the best price.
It is also not in their interest to push down prices on the market by flood it with cheap properties.
A spokesperson for Nationwide said: "We don't really use auctions, we have a panel of estate agents and try to sell the property on the open market."
She added the building society does this to find the best price for the borrower and the society.
Northern Rock meanwhile sells around 98 per cent of the properties it repossesses through estate agents.
A spokesperson added the bank was finding it no more difficult to sell repossessed properties than those put on the market by homeowners.
"In the current market selling a property is difficult, whether it is repossessed or not," she said.
However, there are a number of ways of finding a repossessed property, besides checking the auction houses.
On property search engines - such as www.globrix.com - it is possible to search for properties that have no chain. Not all of these will be repossessed properties, but many are and it provides an idea of discounts available.
Heading to a local estate agent, the key term to look for would be vacant property or no chain.
Robin King, chief executive of whitehotproperty.co.uk, which specialises in selling repossessed properties and those bought by developers, explains there are a mix of buyers looking at repossessions.
"There are a lot of investment buyers, who have seen interest rates fall and are looking to use their cash. There are also first-time buyers and those moving out of rented accommodation."
Mr Toller adds: "We are seeing people with cash not earning much interest in the bank, and also people buying for family or for a child."
And demand for repossessed properties is strong.
"Bearing in mind the market is at about 40 per cent of the level it was, it is quite strong," says Mr King.
"It is strong as there is insufficient supply of property. The great thing about repossessions is there is no chain."
He explained the north-west the majority of apartments being repossessed are former buy-to-let properties, while in the south-east there are more small houses.
Mr Toller says "There is a big mix of property. There are one or two-bedroom flats, but also two and three-bedroom houses."
He also states a five-bedroom property has recently come up on the site, but the site deliberately does not state which properties are repossessed and which are just coming to the market without a chain.
Hang-ups
Many people are held back from buying a repossessed property, both because of the stigma of profiting on someone else's misfortune and the idea that a repossessed property will come in a poor condition.
"There are some horror stories," Mr King says.
"But in general, when borrowers leave a property there is more value in the property the better condition it is. If they still have equity, then they leave it in better condition.
"At the end of the day, the borrower needs to get the house sold."
However, he explains repossessed properties tend to be at the lower end of the scale - with smaller houses - but properties bought by developers can be larger.
"There is demand for these properties. Some people are put off by the stigma, but there are good buys out there if you look," Mr Toller explains.
By looking at chain-free properties, he adds, you are finding motivated sellers who want to make a deal.
However, he warns a careful waiting game may be in need.
When properties first hit the market, the sellers are less keen to negotiate on the price. However, once a property has been listed for a few weeks, the seller is more open to lower offers.
The supply of repossessed properties is limited at the moment - compared to the property crisis as banks and building societies are slowing down their levels of repossession.
Data from the Council of Mortgage Lenders show there were 24,100 repossessions in the first half of the year.
But its forecast the number of repossessions has been cut. For buy-to-let, lenders are keener to place a receiver in charge - especially if there is a tenant - to take the rent than repossess.
Where Mr King is seeing more properties is from developers.
"There is the opportunity for discounts and incentives, equity share and legal fees covered," he says.
Mr Toller adds the number of properties from developers - accepting homes on part exchange deals - is now lower than before.
"But with them you find a willing seller not wanting to hang onto the property and open to negotiate.
"We don't highlight which properties are part exchanges and which are repossessed on the site and that is deliberate.
"All are chain free and have a motivated seller."
Problems
"There is one negative point, repossessed properties are technically on the market until exchange," Mr King says.
This means even at the last moment a higher bid can come in - and the seller will take it - as it is their job to find the highest possible price.
"And this happens quite a bit," warns Mr King.
There are generally no problems with mortgage lenders not offering mortgages because a property has been repossessed.
"Lenders are only wary about the condition. If there is no kitchen or bathroom, the lender would be less happy if the borrower wanted a high LTV deal," says Mr Toller.
Comments
Newsletter sign up