Distressed Sales

Graph 1 shows the number of distressed lots sold at auction on a quarterly basis since Q2 04. The figures have been split into four geographical regions.

In Q2 04, distressed sales were barely noticeable in the auction rooms. Only 170 distressed lots were sold, the lowest number in London (36) and the highest in south east and eastern England (49). Distressed sales in all four areas peaked in Q4 08 but have been falling sharply since.

Towards the end of 2008 lenders were keen to dispose of significant volumes of repossessions unconditionally. As sales by private treaty became very difficult to achieve, auction - with its efficient and transparent means of disposal - became the most active property market.

However, in Q1 09 lenders began to face increasing pressure to assist owner-occupier borrowers and avoid the ultimate sanction of repossession where possible. By January '09, two of the largest lenders in the market, Lloyds TSB and HBOS, had merged and the enlarged Lloyds Banking Group had become 43% state owned. Northern Rock had already been nationalised in February '08. Drivers for strategic decisions in these organisations had shifted from the commercial to the political.

The appointment of a fixed charge receiver is now favoured by many lenders as an alternative to court order and repossession. These cases are however deemed to be "distressed" sales for the purposes of this research and are therefore incorporated within the figures in Graph 1.

Beginning in Q1 09 and continuing during Q2 09, the housing market began to show faint signs of recovery. The success rate of repossessions marketed and sold through traditional private treaty estate agency channels rather than at auction began to improve. Consequently, the flow of repossession stock offered at auction stemmed.

Graph 2 demonstrates the correction reflected in the Nationwide House Price Index.

This shows that in Q2 09, the average sale price of a house in the UK began to rise (from £149,700 to £154,000) following steady falls from Q3 07 (peak £184,100).

Prior to 2009, however, auction had been used increasingly as a means of selling repossessions.

Graph 3 shows how the level of repossessions offered at auction, when expressed as a percentage of all repossessions (as recorded by the Council of Mortgage Lenders), rose significantly from 10% in H1 04 to 22.5% in H2 08.

However, it should be noted that, whereas the number of repossessions recorded by the CML continues to rise, the proportion offered at auction has been falling dramatically since H2 08. Although the number of repossessions forecast in 2009 was reduced from 75,000 to 65,000, this is still a significant volume of potential sales. These have yet to feed through to the sale rooms and, with around 425,000 borrowers expected to be more than three months in arrears by the end of 2009, it would seem unlikely that this trend will not be reversed within the next 12 months.

Graph 1

Graph 2

Graph 3