Going once, going twice… are you ready to bid for knock-down property in a falling housing market?

Over the past 12 months, the numbers of homes sold off under the hammer at auction houses around the UK – both live and online – has crumbled as the credit crunch continues to make it very hard for buyers, particularly first-timers, to get their hands on a mortgage.

In June 2007, in the weeks before the credit crunch began to bite, some 3,371 homes were up for sale and 2,328 went under the gavel, according to statistics compiled by auction specialists the Essential Information Group (EIG); that's a 69% success rate that reflects the then robust demand for homes.

Fast forward to June this year, however, and with 3,074 properties up for auction, just 1,640 were sold – a mere 53%.

But it's not just the numbers of properties that are falling, either. New research drawn up by the Liberal Democrats recently, suggested that the value of houses and flats being sold under the hammer has tumbled by as much as 17 per cent over the past 12 months.

"We're in a state of flux and prices are coming down; people with cash in their pocket will definitely be in a strong position."

Compare that size of fall with those nationally – down by more than 5% between January and July this year for the average house price.

A handful of the lots on offer during the next month underscores the low guide prices on offer: £160,000 for a two-bedroom flat in Tooting, south London; a four-floor house in popular the Redland residential area in Bristol; a penthouse apartment in Edinburgh for £255,000; and a terraced house in Newton Abbot, Devon, for £100,000.

Mercury Homesearch property search agent recently calculated that new-build flats outside London could now be snapped up for a third less than their price in 2006.

Of course, the quality, location, state of repair and size of each property will vary enormously, but tie this slump in auction property prices to first-timer borrowing difficulty, and it presents a major opportunity for cash buyers, professional buy-to-let landlords and others looking to spread their money across a broader investment portfolio.

"We're in a state of flux and prices are coming down; people with cash in their pocket will definitely be in a strong position," says David Leary of EIG.

"And what we're seeing is more repossession properties as banks take over homes and sell them off via auctions to reach the broadest audience possible."

"If you plan to build on the property or develop an extension, it’s worth talking to the local planning authority well in advance."

Already, the volume of repossessed homes listed for sale at auction has risen rapidly over the previous 12 months; the Royal Institution of Chartered Surveyors recently estimated their number would increase by half, to well over 45,000 by the close of 2008.

There's likely room for more auction price falls too, adds Mr Leary, as plenty of vendors are still asking too high a price. As a rough guide, many auctioneers have told vendors who believe their property is worth £100,000 to reserve it at a price of £75,000 if they want a sure-fire sale.

If you're in a position to buy at an auction or pick up a bargain, your hand is very strong but there are still plenty of pitfalls to watch out for.

First, you'll need to delve deep into researching your target property; you can find hundreds listed on EIG's website and compare it with prices in local estate agents to make sure it's truly at a bargain price.

The hard graft then begins with early preparation with advance surveys and valuations.

"Many auction properties are in need of some repair or hide other issues that just aren't visible before a survey and valuation highlight it all," points out Andrew Montlake of mortgage broker Cobalt Capital.

"And there's no real way of telling unless it can be done before auction, which means you have to be prepared to forsake these costs in case you don't manage to buy the house."

And if you plan to build on the property or develop an extension, it's worth talking to the local planning authority well in advance.

If you're a cash buyer, you won't need to worry about the swift turnaround in finance demanded at auctions: usually a 10 per cent deposit on sale day followed by payment of the remainder within 28 days.

However, if any part – no matter how small – of your property purchase depends on a loan from a bank or building society, make sure it's all approved beforehand; miss that 28-day deadline, and you'll lose all of the 10% deposit.

Before you even set foot inside the auction hall, it's crucial to decide your maximum bid; it can be very tempting to raise your hand to bid just a little bit more, and then a little extra, before suddenly finding yourself way over budget: remember, once that gavel falls, you're committed to buying the property.

To this end, it's definitely worth visiting at least one or two auctions before your big day, to soak up the atmosphere and familiarise yourself with the procedure to make it easier later.

By Sam Dunn