Repossessed homes are a ripe market for landlords with properties selling for an average 35% below market value, according to a distressed mortgage firm.
Looking at home sales between 2008 and 2013, repossessed homes sold for an average 60% to 70% of their market value, says HML, a firm that manages mortgages in arrears for lenders.
The figures vary regionally, said the firm, with London homes holding their value better, typically selling for around 22% less than market value.
Damian Riley, director of business intelligence at HML, said: “Many repossessed home owners do not realise that they may still owe their former mortgage lender money if the property sold for less than the value of their mortgage.
“More than 188,000 former UK mortgage holders still owe their former mortgage lender money, with an estimated 83% of repossessions in shortfall, with the homeowner left owing £43,000.
One reason for the differences in shortfall positions across the UK is the ‘forced sales discount’, which is the reduction in sale prices of homes that have been repossessed, compared to the wider market.
“This observed drop in price is as a result of the deteriorating condition of empty repossessed properties once utilities are disconnected and general maintenance reduced or stopped.”
The firm says the figures also reveal a north/south divide in repossessed property prices, with homes selling for much less than their market value in the north rather than the south.
Many repossessed homes end up in auctions, where the trend echoes the firm’s research.
Auction prices tend to show property investors can pick up homes for around a third off the open market value.
But as Riley highlights, repossessed or auction homes tend to have a hidden cost as they are often in a poor state of repair and require a major refurbishment before letting or selling on that bites a chunk out of the discount sale price.