Buy To Let Repossession Figures May Be Inflated

The Buy to Let industry has been reacting to the Ministry of Justice and Council of Mortgage Lenders (CML) recent mortgage possessions data showing Landlord Possession Actions during the first quarter of 2009.

The figures showed that 35,745 landlord possession claims were issued using the standard and accelerated possession procedures on a seasonally adjusted basis, which was 5 percent lower than in the first quarter of 2008 and 1 percent lower than in the fourth quarter of 2008.

27,485 landlord possession orders were made through the standard and accelerated possession procedures on a seasonally adjusted basis, which was 5 percent lower than in the first quarter of 2008 and 3 percent lower than in the fourth quarter of 2008.

44 percent of landlord possession orders made through the standard and accelerated possession procedures were suspended compared to 42 percent in the first quarter of 2008 and in the fourth quarter of 2008.

David Whittaker, Managing Director of Mortgages for Business said: "Given the shortage of Buy to Let lending through CML members, many landlords, and especially those with HMO properties and larger portfolios, have been turning to the banks for 'war chest' facilities secured against numerous properties and this takes them off the CML figures for the time being. The impact of their activity will only show up as they trawl the estate agents repossession lists and snap up properties as cash purchasers.

"The repossession figures are inflated by the practice of expressing arrears as a function of the current monthly loan payment - and given the significant reductions in monthly payments in the past six months, this data needs careful inspection.

"On the plus side lenders who have appointed 'Receivers of Rent' can also make headway into arrears as properties are let and the interest payments reduce month on month."

Keshav Thukaram, managing director of Smart Landlord said: "It's not a surprise to see the number of Buy to let repossessions increasing. In the current environment, rental arrears are a rising problem for landlords - and increasingly they're getting landlords into arrears with lenders.

"Rental arrears not only disrupt landlords' income streams, but the costs to evict tenants from the rented property are substantial.

"Buy to let is not regulated and, as a result, landlords risk having properties repossessed very quickly, without due consideration of TCF guidelines that govern owner occupied sector.

"In the long-term, we are going to see more of this because the most common reasons for tenants getting into arrears with rent is redundancy or some reduction in income.

"Landlords should protect their income with Rent Guarantee products which will protect them against non payment of rent and provide legal expense cover.

"Landlords who are not in trouble should not be complacent. Payments for buy-to-let mortgages have dropped considerably thanks to the cuts in interest rate. They should overpay on their existing mortgages now to improve their credit rating for the future.

"Having said that, 40 percent of landlords own their property outright, so rising Buy to Let arrears figures do not represent instability of the whole private rented sector and should not be overblown."