The credit crunch has had a significant effect on buy to let mortgages. The number of landlords accruing more than 3 months of arrears doubled in the second half of 2008, hitting an incredible 27000 – this figure was almost 4 times higher than the 7,500 landlords with more than 3 months’ arrears towards the end of 2007.
The Council of Mortgage Lenders has also disclosed that 4000 homes on buy-to-let mortgages were repossessed in 2008, compared to 2000 in 2007; an increase of 50%. Although these figures sound alarming, it is important to bear in mind that these repossession figures represent around 0.4% of all active buy-to-let mortgages – there are 1.15 million such mortgages within the UK. In fact, around half of the buy-to-let mortgages in 2008 were take out by soundly-established landlords who took advantage of competitive interest rates to remortgage their properties.
However, it is impossible to deny that the number of buy-to-let landlords with mortgage arrears has risen sharply, and this is due to several factors. Like many private homeowners, landlords have been adversely affected by the rise in unemployment and the slump in house prices – many have found it hard to find tenants for their properties in order to repay the mortgage, or tenants in properties may fail to pay their rent as a result of losing their jobs.
Also, due to the current economic climate, rents have been driven down and both a fall in rent and a loss of tenants will undoubtedly affect a landlord’s ability to pay their buy to let mortgages (make sure you rent your property for the maximum possible rent). This leads to properties being repossessed, in turn meaning many tenants are evicted. Properties are also taking much longer to rent in the current economic climate – 70 days on average – and this means no rental income for landlords for several weeks.
Unfortunately, when credit was easily available and property prices exceedingly high, many people with no adequate experience thought entering the property market on a buy-to-let mortgage was a failproof way to make money in the form of a long-term investment – it is these inexperienced landlords that are struggling now.
They cannot sustain an empty property or properties and, in the current climate, may struggle to sell these properties quickly enough. Evicting tenants who are not paying their rent also takes time, again meaning no rental income for the property – this leads to arrears and subsequent repossession for some inexperienced landlords.
If you have a buy-to-let mortgage and are struggling with repayments, do not ignore it – seek help right away. Contact your lender to explain the situation (before the first missed payment, if possible) and they will be much more likely to offer help. They may offer you a payment holiday until your finances are in better order, or they may allow you to make reduced payments for a set period.
If you have a repayment mortgage, consider saving money by transferring to an interest only mortgage (most landlords have these). If you can prove your cashflow problems are only temporary, your lender is much more likely to agree to an amicable solution.
If you feel too nervous about approaching your lender yourself, seek the help of specialist debt agencies such as the Citizens’ Advice Bureau or the Credit Consumer Counselling Service (CCCS) – they can provide you with free invaluable advice and liase with your lender on your behalf, in order to try and reach a solution to your problem.
If you are coming to the end of your mortgage deal, you may be able to save money by taking advantage of the current extremely low base rate through remortgaging; even if your credit history prevents you from doing so, you may be able to save money by simply switching from a fixed rate to your lender’s SVR, taking into account the low interest rates at present.
Ellie Irwin of the National Landlords Association says;
“Undoubtedly, these are challenging times for landlords. However, professional landlords are better equipped to deal with rental arrears than smaller, ‘buy-to-let’ landlords.
Ensuring a property is competitively priced, marketing a property before tenants leave to avoid a void period, and keeping in regular contact with their tenants are all ways in which a landlord can avoid falling victim to the recession.”
Experienced landlords always have a contingency fund to cover lean periods, and this is a very sensible thing to have; when you do have tenants and are yielding good rent, save some of this in order to cope when your property is not let or to pay for essential maintenance works.
It is natural when times are hard to look for ways to save money, but do not pennypinch in the wrong areas: for example, a letting agent may cost money but can help you find a tenant quickly in the event if your property being vacant and they also oversee the tenancy of your property. If you were to get rid of this service, you would be responsible for all this, adding more stress to an already stressful situation.
The Government has introduced a number of measures to help homeowners during the recession, yet these do not apply to those with buy-to-let mortgages (for example, the State Mortgage Rescue Scheme does not apply to second homes). Thus, the Government really needs to do more to help protect landlords from repossession.
In the meantime, if you get into trouble with your buy to let mortgage remember to contact a free debt advice charity and your lender as soon as possible.