LESG demise 'won't hit faith in auctions'

The collapse of London & Edinburgh Swallow Group hasn't dented confidence in the auction market, according to auctioneers.

James Cannon, head of Savills commercial auctions team, said pubs bought at auction offer more attractive returns than some high-interest bank accounts.

"If you look at a high street bank that is offering 4.7% interest a year and then compare it to investing in a pub that is offering something like a 12% return per annum, investors opt for the pub.

"I don't think the collapse of LESG will dent people's confidence. It will make them more circumspect about what they are buying."

But Cannon warned that although pubs offer better returns than bank accounts, they also carry greater risk.

"We always tell investors that there is more risk involved in buying pubs and advise people accordingly.

"We advise the purchaser to take into consideration whether the property will achieve the rent and to seek professional advice if they are unsure of how much the rent should be.

"We also advise people to look at the alternative use value of a pub - could it be converted into housing?"

Jason Birch, director of auctioneers and valuers Harman Healy, said lenders may be more cautious of financing investments in the wake of the LESG collapse.

"I think banks might be more wary of this type of business set-up and investors may find it harder to gain finance to buy these pubs at auction."

Harman Healy, which is based in London, hasn't sold any LESG pubs for a number of months.

"We took a commercial decision as we didn't fully understand the business model and without this understanding, we were unhappy to proceed with

further sales," added Birch.