The true value of homes for sale?
The Times reported today that the price of homes at auction fell by 25% in the last year.
The average price of the 3,993 houses sold by auction between June and August this year was £130,400 – 23.4 per cent lower than the £170,300 average achieved during the same period last year.
What is the effect of this on the rest of us homeowners?
When lenders value your home to decide how much to lend for a mortgage or remortgage one of the key elements that they use is the likely auction sale price. This is to give them an idea of the realistic price they would be able to recover if they repossessed your home and sold it via auction.
Until a year ago the British obsession with property meant that auctions were full of amateur investors and the prices paid for properties were in many cases higher than the high st estate agents prices.
Now these part time investors have abandoned the auction rooms, but even professional property developers and investors are finding it very hard to get the finance to buy at auction.
The result is that when your lender (or more likely their surveyor) comes to value your property they will also use these auction sales figures to value your home. This means the amount you can realistically borrow will be reduced and could leave you in negative equity.
Coupled with other life issues like rising cost of living, illness or job loss and this set of circumstances can soon leave you in a difficult financial situation where repossession and loss of your home can be a very real possibility.
