Property auctions are on the rise: what are the pros and cons?

An increasing number of landlords are deciding to sell their buy-to-let properties at property auctions, following mortgage rate hikes and looming tax changes.

Those choosing to flee or reduce their stake in the turbulent property market have been opting for quick sales, with one auction house reporting that 38% of its lots are from buy-to-let investors.

Here, Which? delves into why landlords are reassessing their portfolios, and explores the pros and cons of putting a property under the hammer.

Surge in landlords opting for auction sales

Data from estate agency Hamptons shows how landlords have driven up auction sales in recent months. 

The share of rental homes in auction catalogues more than doubled from July 2022 to January 2023, rising from 13% to 29%. To put it into context, the highest percentage seen previously was 18% in December 2016.

Meanwhile, online property site My Auction has revealed that 38% of its lots are from buy-to-let investors who are keen to sell up.

Hamptons data also shows there has been a shift in the type of property going under the hammer. Houses now make up 76% of properties sold by investors at auction, outweighing the number of flats.

Make your money go further

Find the best deals, avoid scams, and grow your savings with our expert guidance. From only £4.99 a month.

Join Which? Money

Cancel anytime.

4 reasons why property auctions have become more popular

A number of factors - plus a cost of living crisis to boot - have heralded poor rental yields, resulting in squeezed profit margins for landlords.

Stuart Collar-Brown, co-founder and director of My Auction, said: 'The interest rate rises have solidified and sped up the mass exodus of buy-to-let investors from the market. 

'However, other contributing factors - such as the consistent changes in legislation and taxation surrounding landlords in this section of the market - have made it almost unviable for some landlords to retain their investment properties.'

1. High mortgage rates

The increased cost of buy-to-let (BTL) mortgage rates is a thorn in the side of landlords, with the average fixed-rate deal currently coming in at 5.91%.

While the figure has decreased from the high of 6.76% in November last year, it is far away from the average rate of 3.2% on offer just 12 months ago.

Landlords looking to buy or remortgage this year are therefore faced with much bigger costs than they have been accustomed to over the past decade. 

The graph below shows how average BTL mortgage rates have changed over the past 10 years, using data from Moneyfacts.

• Find out more: what's happening to buy-to-let mortgage rates?

2. Capital gains tax allowance changes

The new financial year will bring with it a crucial tax change that will have a big impact on landlords. 

The government is slashing the capital gains tax (CGT) allowance from £12,300 to £6,000. There's also set to be a further reduction in April 2024, when the allowance will be cut to just £3,000. 

Landlords have to pay CGT on the profit they make when selling a buy-to-let property, which is charged at either 18% or 28%, depending on your income tax band.

With this change just weeks away, many landlords have turned to the auction houses in an effort to make a quick sale before the new CGT threshold comes into force.

Thanks to the quick-fire nature of auctions, sellers and buyers can rapidly exchange and complete on property purchases.

• Find out more: 11 things landlords need to know in 2023

3. Rent-hike freeze and eviction ban in Scotland 

According to Hamptons, rental homes in Scotland currently account for a huge 41% of auction lots. 

In an effort to safeguard tenants, an eviction ban was introduced last September and is set to remain for at least a year. 

The eviction ban is coupled with a Scottish rent freeze, which leaves landlords unable to raise rents at a time when their finances are squeezed. The controversial measure - also introduced in September - is planned to be calmed in April, when the rent freeze will be turned into a rent cap.

Private landlords are set to be allowed to raise rents by a maximum of 3% – though can apply to increase this to 6% in special circumstances. 

Opponents claim the changes are 'clearly not enough' in the current financial climate where inflation stands at 10.1%, resulting in many landlords turning to property auctions in a bid to flee the market.

4. Bans on no-fault evictions

No-fault evictions are due to be banned as part of the Renters' Reform Bill, and tenants will be given more power to challenge landlords who fail to meet their obligations. 

Landlords will no longer being able to set blanket bans on families with children or those in receipt of benefits, and must also be more open to pet ownership among tenants. Notice periods for rent increases will double, and tenants will have stronger powers to challenge unjustified hikes.

The government hopes to bring in legislation some time in 2023.

In Wales, the government has already implemented a suite of new measures to better protect renters against eviction.

Which? Money Podcast

Join us on our weekly audio show for the latest money news and personal finance hacks to help make you better off.

Listen now

Pros and cons of selling property at auction

While selling a property at auction can make for a quick and easy sale, there are pitfalls. 

Below, we outline the advantages and disadvantages for those considering selling at an auction:

Pros

• Quick payment: if a legally binding contract is created when the hammer falls, the buyer will have to pay a 10% deposit on the day and the remaining amount within 28 days.
• Chain-free: selling at auction means you won't be slowed down by other parties, which can be particularly tricky if you're in the middle of a property chain.
• Seller stays in control: the sale price is the final price; it cannot be renegotiated. When selling through an agent, the price isn't guaranteed until the exchange of contracts.
• Buyers love projects: if your property needs major renovation work and you don't want to spend thousands on it, then auctions could be the place to go, as they commonly attract buyers in search of big projects.
• Can cut your ties with a loss-making property: due to the ease of selling at auction, if you're struggling to shift a property, it could be prime time to list it for auction - its sale price could surprise you. Do bear in mind you're legally required to be honest about any serious problems you're aware of.

Cons

• High auction fees: you'll usually need to pay an entry fee that can range from a few hundred to a few thousand pounds, even if the property doesn't sell. If it does sell, you'll likely pay around 2.5% plus VAT in commission - that's considerably more than an average estate agent fee.
• It might not be marketed well: selling through an auction house can result in the property not being exposed to the same degree as it would be if marketed through an estate agent. It therefore might not drum up much interest.
• No guarantee of a sale: as a result of poor marketing, or an off-day at the auction, your listing might not sell. This means you'd lose money from the entry fee, and would have to try and sell again.
• Sale prices fluctuate: while you'll have a guide price and figure in mind, it's not uncommon for properties to be sold for less than anticipated. Make sure to set a good reserve - you don't want to have to give over the property for a disappointing price. 

Find out more: property auctions explained