Outlook

The prevalence of private investors in the residential auction rooms is indicative of renewed confidence in the sector. Despite the limited availability of finance, buyers are willing to invest their own cash. With average investment yields from assured shorthold tenancies at 8.5%, and rising, property is still an attractive alternative to cash savings. Although mortgage approvals are rising slowly, banks remain reluctant to offer lower rates of borrowing, preferring to take full advantage of the wide arbitrage in bank lending. And it appears that, for the foreseeable future at any rate, they will continue to use the opportunity presented by the current 0.5% base rate to improve their balance sheets by increasing cash reserves.

Although this strategy has been encouraged by the Financial Services Authority (FSA), private investors will necessarily be restrained by limited cash resources under these circumstances. Once these have been invested, there is a risk that further activity will be affected. Indeed, effective demand from owner occupiers, and first time buyers in particular, will continue to be restricted. Sustained recovery will be supported by, not only willing buyers and sellers, but, pivotally, willing lenders. It is hoped that the easing of lending restrictions will continue although this alone will not be sufficient. Until the rise in unemployment is tempered (7.8 per cent for the three months to June 2009), demand and confidence is unlikely to be fully restored.

A poor supply of quality stock will continue to be an issue for some buyers. Many housebuilders have suffered losses and have suspended development. Private sellers reluctant to crystallise losses may have postponed plans to move home in anticipation of a healthier climate. On a positive note, however, these restrictions on supply may serve to maintain prices in certain sectors for the time being.

But for those keen to buy, there will continue to be opportunities as forced sale situations come to market through the auction rooms. As the most efficient forum for delivering value for money to bidders and market value on the day for sellers, the sale room is expected to remain exceptionally active. And as ever, in an uncertain environment, it will remain one of the more reliable barometers of market sentiment.