Residential Auctions Annual Review 2015

Residential Auctions Annual Review 2015

Index --2015 Overview --Allsop Residential Auction Results --Property Analysis --Yield Analysis --Vendor Analysis --Buyer Analysis --2015 Auction Sale Highlights The residential results reflect continued house price growth across the UK --Outlook for 2016 --2016 Auction Dates --Contact Us

2015 Overview Allsop Residential Auction Results Allsop Residential Auctions raised 445m in 2015 making last year the most successful in its history. This was 9% ahead of the 421m raised in 2014 and comprised of 1,436 lots. In total, 84% of all residential lots offered by Allsop were successfully sold - against a market average of 77%. Across commercial and residential UK auction sales, Allsop raised a combined 895m. This total value increases to 1.09bn when including sales from Dublin, cementing Allsop s position as the leading real estate auctioneer in the UK and Ireland. The residential results reflect continued house price growth across the UK. All regions saw slower rates of year-on-year annual price growth than 2014, with the exception of Scotland, where average prices declined slightly during 2015. London and the metropolitan South East continued to be the strongest regions.* minority, led to a reluctance to sell prior to the election as parties attempted to use property as a political football. Zero inflation from Q2 2015 also contributed to slower growth - though the general narrative was one of gentle stability. Record low interest rates have continued, while the extension of market stimulating measures such as the Help to Buy sustained market confidence. Against the background of a relatively certain economic outlook and a stable political landscape, our first auction post-election in May raised 92m - the highest total ever realised at a single day residential auction. * Source: Nationwide House Price Index Q4 2015 Totals raised ( ) and success rates (%) in 2014 & 2015 2015 2014 February March May July September October 50m 85% 54m 89% 52m 89% 62m 93% 92m 84% 78m 85% 55m 91% 54m 83% 50m 80% 57m 82% 74m 79% 59m 83% December 69m 79% 58m 86% The return of a majority government in May s general election settled a market that had experienced months of uncertainty. Threats of a mansion tax and rent controls from Labour had alarmed the market, while fears of another coalition government, or at least an unstable 2015 2014 445m 421m 1436 1565 84% 86% 310,014 269,556 90 78 Total Raised Sold Success Rate Av. Lot Size over 1m

Property Analysis Investment / Vacant Commercial / Residential The proportion of vacant properties Allsop offered at auction in 2015 was roughly consistent with the year before, with the 790 sold representing 57% of the total number of lots on offer (895 / 58% in 2014) and maintaining the firm s wide range of stock for those looking for development and investment opportunities. Income producing lots saw an increase to 39% from 37% the year prior (stable at 592 from 599 in 2014). There was a fall in the number of part vacant lots, with 55 sold in 2015 compared with 2014 s 73 (down from 5% to 4%). The average lot size of residential sales in 2015 was 310,000, a 14% increase on 2014 ( 271,000). Residential properties experienced a decrease in sales numbers, declining 9% from 1,302 in 2014 to 1,182 in 2015 - making up nearly all of the decrease in overall lot sales. Sales of commercial and mixed-use properties stayed relatively stable, with a negligible decrease in the number of commercial properties with potential for residential use sold and a slight rise in the number of mixed-use properties sold. Coming off the back of 2014 s sharp increase in the number of commercial sales, this stability reflects continued demand for the value opportunities offered by the extension of permitted development rights (PDR) which allow for commercial buildings to be converted for residential use without planning consent. The total value of commercial lots sold in residential auctions rose sharply, raising 69m (average lot size 592,000) up from 30m in 2014 (average lot size 226,000). While the volume of commercial buildings sold in residential auctions fell in 2015, the huge rise in revenue demonstrates the strong demand for PDR opportunities, highlighting the high potential uplift in value anticipated by investors. 4% 300,000,000 250,000,000 895 790 8% 350,000,000 300,000,000 1357 1302 1182 39% 57% 200,000,000 150,000,000 100,000,000 50,000,000 599 592 73 9% 250,000,000 200,000,000 150,000,000 100,000,000 55 117 126 72 135 83% 50,000,000 128 132 Pure Vacant Pure Investment 0 Pure Vacant Pure Investment Part Vacant Residential Commercial 0 Residential Commercial Mixed Use Part Vacant Raised 2014 Raised 2015 Mixed Use Raised 2013 Raised 2014 Raised 2015

Property Analysis continued Regional Distribution of Properties Sold in 2015 Average Price Achieved for Vacant Single Units (Houses & Flats) The average lot size within the M25 region increased for another year, running to 532,000 from 486,000, up 9.5% (down on 2014 s increase of 22%) reflecting the general softening in the rate of house price increases. The number of lots selling for more than 1m went up. 90 lots realised a total of 193m, compared with 78 sold in 2014 for a total of 157m. There was a slight decline in the proportion of lots from the South East (including London) returning to the 2013 level of 53%, down from 2014 s 57%. The proportions from the regions remained roughly the same save for an increase in lots sold in the North West from 7% to 12% of all lots sold. The general trend seen this year has been modest growth in average unit prices across the board, with two notable exceptions in the North West and the South West. Both saw substantial increases of 83% and 29% respectively, up from 34% and a decrease of 2% respectively in 2014. This general trend of steady growth reflects the wider UK market. Figures from the Nationwide Building Society* show an annual slowdown in growth nationally - down 4.5% year-on-year from 8.3% at the end of 2014 - but a modest increase on a monthly basis, up to 4.5% in December from 3.7% in November. [NB. Our auction results show a modest drop in the average price of single vacant units last year in Yorkshire & The Humber. We attribute this only to the nature of the stock offered and not to any trend.] * Source: Nationwide House Price Index December 2015 500,000 Northern Ireland 1% North East 5% 450,000 400,000 Yorkshire & The Humber 6% Scotland 1% Wales 2% Midlands & East Anglia 14% North West 12% South East 20% South West 4% 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 North East North West South East South West M25 Midlands & East Anglia Wales Scotland Yorkshire & The Humber Northern Ireland M25 36% Average price achieved for vacant single units 2013 Average price achieved for vacant single units 2014 Average price achieved for vacant single units 2015

Yield Analysis Assured Shorthold Tenancy Yields Regulated & Ground Rent Yields Average AST yields stayed roughly stable in London in 2015, up to 6.3% from 6.2% in 2014, reflecting continued investor confidence in the London market. Rental increases in the capital have been fuelled by both strong tenant demand and a trend of rising house prices putting ownership out of reach for many. Average house prices increased by over 12% in London, roughly three times the growth in average UK rental values, so rewarding investors with a handsome total return. AST yields outside of London saw a moderate increase to 9.5% from 2014 s 8.8%, but still below the rate of 11.4% in 2013. Overall, average AST yields at Allsop auctions are up to 9.1% (8.3% in 2014). Yields in the regulated tenancy investment sector have been roughly stable in 2015, typically remaining within the 4% and 6% band across the year, with highs of just over 6% in the February and July auctions and no significant lows. Ground rent investments with over 80 years unexpired saw wider ranges in yields during 2015. In 2014 the general pattern of yields was between 4% and 6%. 2015 however saw yields range from 2% to 6%. We attribute this to the nature of the investments offered, rather than to any significant shifts in the ground rent market. On the contrary, we predict a sustained - perhaps even improved - demand for ground rents over 2016, particularly if the buy-to-let market for the smaller investor becomes more unpredictable. 14.00% 12.00% 10.00% Overall Average 8.00% 6.00% London Only 4.00% 2.00% Outside London 0.00% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% Feb-14 Mar-14 May-14 Jul-14 Sep-14 Oct-14 Dec-14 Feb-15 Mar-15 May-15 Jul-15 Sep-15 Oct-15 Dec-15 Average AST Yields 2014 Average AST Yields 2015 Regulated AST Ground Rents (80+ Years) Bank of England Base Rate

Vendor Analysis The trend of a decrease in distressed residential lots offered at auction continued in 2015, falling to 25.7%, down from 28.4% in 2014 and over a third of all lots in 2013 - in part a product of sustained economic growth. 15.5% (290) in 2014, possibly due to anticipated tax changes in buy-to-let. The proportion of lots sold by property companies also shifted, down five points to 32.8% (538) from 37.8% (709) in 2014. The largest shift was in the proportion of lots from private sellers, which increased to 25.3% (414), compared with Misc 1% Distressed 26% Private 25% Trustee 1% Local Authority 1% Statutory Body 5% Housing Association 8% Property Company 33% The proportion of lots from private sellers increased to 25.3% (414), compared with 15.5% (290) in 2014

Buyer Analysis International Interest Shown in the Online Catalogue in 2015 In 2015 the online catalogue received a total of 1.25m visits from 196 territories globally. 42% of these were new visitors. Location of visitors to our website ranked by region 1 UK 2 Ireland 3 Western Asia 4 Southern Europe 5 Western Europe 6 Northern America 7 Africa 8 Southeast Asia 9 Eastern Asia 10 Australasia 11 Southern Asia 12 Northern Europe (exc UK & Ireland) 13 Eastern Europe 14 Caribbean 15 South America 16 Central America 17 Central Asia Domestic Interest Shown in the Online Catalogue in 2015 On average, 127,000 visits were made to the online catalogue during the three week marketing period preceding each of the seven sales held. 1. London 2. Croydon 3. Birmingham 4. Manchester 5. Leeds 6. Leicester 7. Bristol 8. Liverpool 9. Slough 10. Brighton Remote Bidding We continue to expect online bidding to become more popular as younger and more technologically savvy buyers enter the market. Following the 100% success of our first new homes online auction in June, we anticipate that this method of buying property will become more widespread. Allsop will be continuing to develop its online auction strategy in 2016.

2015 Auction Sale Highlights High value lots in prime central London Opportunities in the suburbs and home counties 3.33m 5.95m 3.075m 457,000 Oct: Lot 21 Oct: Lot 29 May: Lot 198 Sept: Lot 125 Knightsbridge, London, SW7 Marylebone, London, W1G Stanmore, Middlesex Oxford, Oxfordshire Two bedroom third floor flat in an attractive mansion block. Guide 2.75m+ Two virtual Freehold central London buildings. Guide 5.5m - 6m Grade II Listed restaurant with potential for change of use and / or redevelopment of site. Guide 2.5m+ Freehold semidetached house subject to an AST. Guide 457,000+ Strength of the London market Good quality income producing stock 835,000 1m 1.375m 990,000 Mar: Lot 17 Sept: Lot 17 Feb: Lot 55 Oct: Lot 61 West Hampstead, London, NW6 Maida Vale, London, W9 Sileby, Leicestershire Kings Norton, West Midlands Leasehold selfcontained ground floor mansion flat. Guide 625,000 Self-contained first floor flat let to a regulated tenant. Guide 800,000+ Freehold pair of residential blocks. Guide 1.25m+ Unbroken Freehold block of twelve purpose built flats. Guide 800,000

2015 Auction Sale Highlights continued... Offices with PD rights in demand Ground rent investments Prior 2.9m 1.4m 75,000 May: Lot 91 Dec: Lot 59 July: Lot 15 Dec: Lot 18 Dorking, Surrey Office building with Permitted Development pending for 71 residential units. Guide 7.75m Leatherhead, Surrey Freehold office building with Permitted Development rights for residential. Guide 2.8m+ Wapping, London, E1W A rare and unique Freehold ground rent investment secured over a total of 213 apartments. Guide 850,000+ Hinckley, Somerset Freehold ground rent investment secured upon a purpose built block of 14 flats. Guide 60,000-65,000 Land with residential development potential Unusual lots 1.07m 700,000 600,000 1.26m Feb: Lot 34 Dec: Lot 185 Mar: Lot 166 July: Lot 5 South Ruislip, Middlesex Leicester, Leicestershire Cropston, Nr Leicester Primrose Hill, London, NW3 0.25 Hectare (0.63 Acre) site with planning permission. Guide 700,000+ 0.153 Hectare (0.378 Acre) site. Guide 500,000. Grade II Listed former pumping station and visitor centre with observation tower. Guide 400,000+. A Freehold well located site with possible development potential. Guide 100,000-150,000

Outlook for 2016 2016 Auction Dates There will be several drivers in the residential market during 2016. * 17th & 18th February 2016 * 2nd & 3rd November 2016 * Provisional date The most important considerations for those in the buy-to-let market will be the impending tax changes in April from George Osborne s 2015 budget. These demonstrate a clear intent to take the heat out of the housing market and make it easier for owner occupiers, particularly first time buyers, to buy. Were there to be a rise in interest rates, it is unlikely to be large, particularly in a climate of low inflation and falling oil prices. Any rise there is will be modest and will result in limited hardship amongst borrowers. Lenders will continue to operate a policy of forbearance so we do not foresee a rise in distressed selling this year. * 29th & 30th March 2016 * 25th & 26th May 2016 * 19th & 20th July 2016 * 14th & 15th September 2016 * 14th & 15th December 2016 Catalogue entries are invited approximately five weeks prior to each auction. Venue: The Cumberland Hotel Great Cumberland Place London, W1H 7DL The highest profile change will be the 3% addition to marginal stamp duty rates for second homes and buy-to-let investments. This would add 15,000 to the tax bill for purchasing a 500,000 residential property. Perhaps a more significant change, and one which is likely to have a greater impact over the longer term, is the limitation of tax allowances available for deduction of mortgage interest from tax paid on rent payments to the basic tax rate of 20%. This will be fully phased in by 2017. Higher rate taxpayers with investments where mortgage interest exceeds 75% of their rent charged will become lossmaking under these changes. As a result, 2016 may see some landlords reconsider their investments and potentially disinvest. Our view is that, while these aggressive measures will never be viewed as welcome, it would be wise for the smaller investor to consider the bigger picture. With demand increasing and significant shortage in supply likely to endure, we see no indication that capital value appreciation in residential property is likely to stop in the medium term. We do not believe that stamp duty changes should deter investors. Payment of additional SDLT is inconvenient but, at the present rate of house price inflation, is likely to be negated over months not years. Any market uncertainty surrounding the London mayoral election this May is likely to go unnoticed in the capital as prices are buoyed by the shortage of supply. Although overseas investment is contracting, London will continue to be seen as a safe haven for investment. The changes to income tax allowances and stamp duty levies are aggressive attacks on the smaller investor, but exceptions will be made for those with larger portfolios. Investor demand is unlikely to be materially affected this year unless underlying confidence in the longer term future of residential property is weakened. Given the well documented shortage of housing, both to buy and rent, we do not consider this a likely scenario. Outside of London, the promotion of the Government s Northern Powerhouse strategy may see a continuation of the increased demand seen in the North West, Yorkshire and Humberside last year as investors seek value in the regions ahead of substantial infrastructural investment and regeneration alongside HS2. All in all, it looks set to be an interesting year. Allsop will continue to offer a wide variety of properties for investors, landlords and owner-occupiers seeking opportunities over the coming months. We look forward to helping you in 2016.

Contact Us Contact a member of the team to discuss selling at Auction Gary Murphy Chris Berriman Stuart Gayer Jourdan Prowting +44 (0)20 7344 2619 gary.murphy@allsop.co.uk +44 (0)20 7344 2639 chris.berriman@allsop.co.uk +44 (0)20 7344 2626 stuart.gayer@allsop.co.uk +44 (0)20 7344 2675 jourdan.prowting@allsop.co.uk Richard Adamson +44 (0)20 7344 2614 richard.adamson@allsop.co.uk Richard Watson +44 (0)20 7344 2664 richard.watson@allsop.co.uk Jamie Clarke +44 (0)20 7344 2644 jamie.clarke@allsop.co.uk Christopher Wilson Investment & Development +44 (0)20 7344 2609 christopher.wilson@allsop.co.uk

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