In the first half of 2012, there were 18,100 repossessions. 19% of these were buy-to-let properties, up from under 10% in early 2009. Contrasting to these figures, the number of owner-occupied houses being repossessed has been declining since the beginning of 2009.
The repossession rate reached 0.24% for the first time in the buy-to-let market; this is the total number of repossessions in relation to the total number of mortgages. The repossession rate for owner-occupied homes was just 0.15%, down from 0.22% at the start of 2009.
Buy-to-let mortgage loans reached the highest number for four years last year, after a record level of rents have encouraged landlords to expand their portfolios.
Lending for buy-to-lets has grown from 5.5% of the mortgage market in 2005, to 12.6% this year. Loans on buy-to-let properties have also increased by 14% year-on-year. In the three months to June, £3.9bn has been lent, creating a total of £160bn lent on buy-to-let properties. The demand for rental properties is fuelled by potential buyers struggling to get mortgages as a consequence of the recession.
However, buy-to-lets have been among properties most at risk of repossession. The early to mid-2000s saw a considerable increase in the number of people becoming buy-to-let landlords.
A number of people with no prior experience of being a landlord opened the way and bought investment properties. These, and existing landlords could face two common problems. Tenants could potentially stop paying rent, or move out and landlords could find replacing them difficult. There could also be a need to pay for unexpected repairs to the property.
Landlords are Increasingly Getting Repossessed
Neal Hudson, a researcher from Savills, has also said that contributing factors in repossessions include lenders lacking forbearance, and higher mortgage rates.
Predominantly however, Savills have stated that buy-to-let properties tend to incur high levels of arrears, due to non-payment by tenants, and landlords not delivering unexpected maintenance costs.
Professional landlords are more likely to manage their portfolios in a way that ensures coverage, should there be a sudden lack of income or required expenditure. Lack of finance for one property can generally be covered by income on other properties, or by an established back-up fund.
Many new landlords do not have an emergency plan in place to cover unexpected expenditure or a decline in income. Consequently, financial difficulties may build up in a short space of time.
Some courts also take a firmer approach to repossession in the case of buy-to-let properties. Judges could expect arrears to clear more quickly than on a borrower’s home. Borrowers may also be required to contribute towards arrears, over and above what they receive in rent. This is not a set rule, however, and it is advised that borrowers always explain why the arrears build up, and the efforts they have made in trying to clear them.
Repossession can occur of either the landlord’s home, or their tenanted property. In the case of their home being repossessed, this can occur when a landlord channels money into their buy-to-let property, and thus gets into difficulty with the mortgage on their own house.
Judges can be less sympathetic in these cases, as they expect a buy-to-let landlord is not in a desperate state, having more than one property. This could therefore result in a judge taking a strict approach in the repossession cases of a landlord’s home.
Where arrears have built up on a buy-to-let property, receivers may be appointed to administer the property and discover whether there are legitimate tenants in the property. If not, a repossession case may be started against trespassers.
In cases where a borrower has used an ordinary residential mortgage on a buy-to-let property, any tenants placed in the property by the borrower will almost definitely be unauthorised. Unauthorised tenants are likely to have no right to remain in the property upon receiving repossession proceedings and eviction. They may, however, have a contractual agreement with a landlord, and could potentially take separate legal action against them, to recover any rent they have paid, or to compensate for the loss of their home.
More information can be found at housingrepossessions.co.uk.