FUNDING


Banks let down 30% of buyers


Nearly a third of successful bidders at auctions are let down by mainstream lenders, says


Auction Finance Limited, which specialises in funding auction purchases. Too many banks are pulling out of deals after investors have made successful bids – leaving them scrambling for finance to meet the completion deadlines set by auction houses – often just 28 days. Scott Hendry, National


Development Manager at Auction Finance Limited, said, “It’s all too common for high street banks to pull out of funding an auction transaction because of the short timescales for completion or the property needs work. Yet most people bidding at auction want the property quickly so they can renovate it to sell on or rent out. “Sometimes bidders assume that the funding has been agreed by the bank or lender when in fact they only have an ‘agreement in principle’ which is wholly different from a real approval to borrow the amount required for the property. “We estimate that in 2012, so


far, 30 per cent of property investors we have dealt with had to rely on short-term finance to fund their purchase because their previous lender has let them down. In some cases they have been able to agree long-term funding with their bank at a later date but this process just takes too long for someone trying to secure a good investment opportunity at auction. “A short-term bridging loan secured against other properties in a portfolio is one way to avoid being let down at the last minute.” Auction Finance Limited outlines the top five reasons why auction property deals fall over:


• 1) Bank pulls out of the funding • 2) Bank refuses to fund because


due to short timescales


• 3) Borrowers assume the • 4) Delays in depositing the • 5) Last minute revelations on


funding has been agreed funding from the bank


the borrower’s credit check prevent funding.


PROPERTYdrum JULY 2012 59


the property has no kitchen or bathroom


COMMERCIAL Hope for high streets through auction sales


The high street may be suffering at the hands of insolvencies and the internet, but retail auctions saw values increase by 1.0 per cent during the first quarter of 2012. Auctioned shops deliver almost a third more income than an average retail unit – a sign that all may not be lost for Britain’s retracting high streets. This is because auctioned are generally cheaper than the market value and thus offer considerably better value to whoever buys them. Activity is increasing and because auctions are an easy way for the ‘man on the street’ investor to buy into property, auctioneers believe this could provide a real solution to high street woes. The average yield


(essentially income per year) on a retail unit bought at auction is now 7.8 per cent. This is 190 basis points higher than in the wider market, or a difference of 32 per cent. Property benchmarking firm IPD, in association with Acuitus and EIG, has launched a new index based upon the change in retail property values sold at auction. The index will provide greater transparency on price movements observed in the UK auction rooms, which are often seen as a leading indicator for the secondary market. Two-thirds of properties sold in the commercial auctions market are retail units – and the majority of today’s trading


bidding to save their high street.


“The reasons for our high


For retail units, it seems, the price is now just right!


now occurs in the auction room.


While prices in the auction


room rose by one per cent during the first quarter of 2012, values for commercial retail units fell by -1.3 per cent. This may be an indication of the ‘bottom’ of the retail market. Richard Auterac, Chairman and Auctioneer at Acuitus said, “At auctions up and down the country we’re seeing the man on the street literally


street woes are the overpricing of retail rents. Occupiers can’t afford to rent shops but that isn’t necessarily the fault of landlords. As we saw with Clintons, many retailers overpaid simply to get better positions on the high street and as a result, when the market turned, they were left high and dry. As major investors – like pension funds – stick to large shopping centres where economies of scale help them retain profitability, high street shops that are more management-intensive are being left to the smaller investor. “We’re seeing a rebasing of the high street that’s being caused by banks who lent against unsustainable rental contracts being forced to crystalise their losses. The result is that rents could become affordable and sustainable and it’s a once in a lifetime opportunity to rebalance things.


“The smaller, cheaper units


offered at auction are possibly the best indicators of investor confidence in the high street. Despite widely negative reports concerning the UK retail sector in the last year, smaller investors are seeing these units as excellent value, and offering an extremely competitive return. To put it simply, the price seems to be very much right.”


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