Almost half of all properties going to auction are failing to sell on the day, as sanguine buyers wait until the bidding has ended before making rock-bottom offers on unsold lots. Behind the scenes, struggling auctioneers are urging sellers to drop their reserve prices and some investors are quietly snapping up deals for up to 40 per cent below market value.

Although auctions are still well attended, falling house prices and the worsening credit crunch mean that buyers are interested in buying only what they perceive as a bargain. Gone are the first-time buyers and novice buy-to-let investors. Auction crowds today are made up of experienced homeowners and seasoned investors with large cash deposits, who will on no account pay over the odds for a house.

Figures from the Essential Information Group (EIG), the online auctions monitor, show that only 57 per cent of listed residential properties sold at auction in April. That is the lowest percentage since 1991, when the housing market was in the depths of a downturn. According to EIG, about 10 per cent of auctioneers' sales are being made after the auction has ended, compared with about 5 per cent five years ago.

Tony Webber, of Eddisons, the property auctioneers in Leeds and Manchester, reported that at the auction held on May 15 only 14 of the 46 residential lots offered (30 per cent) sold successfully. “There was very little appetite in the residential section of the sale, which has declined significantly over recent months. It is obvious that buyers now realise the financial gains they have enjoyed in previous years are currently unachievable,” he commented.

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“Buyers are saying they are not sure where the bottom of the market is. So they would rather wait to find out what the reserve price is after a property has been withdrawn. That way they can buy on their own terms. Some properties are being sold at reserve price. Some are selling at 10 per cent below that,” he added.

The reserve price is technically the lowest offer a seller is prepared to accept. It is usually below the market value of the property and a little lower than the published guide price, which is set competitively to entice buyers into the auction room. It is only ever disclosed if a property fails to sell at auction.

As the housing market grinds to a halt, auctioneers are urging sellers to keep the reserve as low as possible to increase the chances of a sale. With only about three weeks between the time a catalogue is published and an auction is held, only those that are priced keenly will attract interest.

Webber said: “During the boom, if a property was for sale at £100,000 at an estate agent, the reserve at auction would be £80,000. Now the reserve would be set at £70,000 or even £60,000.” That means that an investor buying a property at the reserve price could be paying up to 40 per cent below an estate agent's price.

In their drive to keep reserve prices down and their sales up, auctioneers are refusing to list properties they do not think will sell well. For every property that makes it into the catalogue, several are being turned away because the seller will not accept the low reserve.

Gary Murphy, a partner at Allsop, the UK's largest auctioneers, said: “There is no better position to judge a market than standing in an auction room with a hammer in your hand. Buyers are being more cautious. It is much harder to work the room.” In response to the sluggish market, Murphy is being extremely selective: “We only list lots that we can sell in this market. We need to prepare a catalogue that is not going to waste buyers' time. Auctions are there to create competition. There is no point setting reserves at a high level.”

As the credit squeeze tightens, 38 per cent of the Allsop catalogue is made up of repossession and receivership cases. Murphy said: “In percentage terms we have double the number of repossessions we had last year.”

Almost a quarter of all properties at auction are repossessions and the number is expected to rise further as the number of people defaulting on their debt grows. The latest figures from the Ministry of Justice show that the number of repossession claims, the first stage of the repossession process, was up by 17 per cent on last year. Although only a fraction of the 38,688 claims made in the first three months of this year will result in actual repossessions, the Council of Mortgage Lenders said the figures were in line with their predictions of 45,000 repossessions this year.

The largest proportion of the repossessed homes from around the country will end up being auctioned in London rather than the regions, as sellers perceive the market in the capital as more buoyant and competitive.

Successful bidders at auctions are required to pay 10 per cent of the property's price there and then, with the balance due within 20 working days. Murphy said: “The advice is emphatically to have finance in place before you bid. We have seen a number of deals falling through between exchange and completion because buyers simply couldn't raise a mortgage.”

Eddisons: eddisons.com : June 23, Bradford; June 24, Manchester; June 26, Leeds.

Allsop: allsop.co.uk : June 2, London.

For more auctions see eigroup.co.uk

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