News
Buy-to-let tenants on shaky ground
June 19th 2009
Tenants in buy-to-let properties are increasingly at risk of losing their home if the landlord is struggling to pay the mortgage. They run a three times higher risk of running into difficulties than tenants in normal residential properties.
The first quarter of 2009 saw 1,700 buy-to-let properties repossessed and 2,400 handed over by the lender to ‘receivers of rent’ to manage. Usually tenants are unaware that there is any problem, or that the property is about to be repossessed, until the end of their tenancy or when the bailiff shows up at the door.
It is up to the lender to decide what course of action to take when a landlord cannot meet the mortgage payments. The lender can appoint a receiver – typically a chartered surveyor or insolvency expert who is independent of the bank and the borrower – or decide to repossess the property.
Tenants do have some protection in law, as long as they are paying their rent and abiding by the tenancy agreement. But in cases where the lender is not aware that the home is being rented out, which may technically be seen as fraud, the lender is not normally bound to the tenancy agreement, and may be less likely to take the receivership option. As Elizabeth Brogan of the National Landlords’ Association (NLA) explained, “'With a proper buy-to-let loan, the mortgage company is less inclined to get possession in the current market. It's better to keep the tenant so there is some money coming in, especially if it is covering the interest on the loan.”
Tenants’ organisations and charities are calling on the government to improve the legal rights of tenants who find themselves homeless if the property has been repossessed. These groups want the law changed to give tenants sufficient time to find alternative accommodation; at present the law states that tenants must be given only two weeks’ notice, and they have none of the rights that normally protect tenants from losing their homes without notice.
Often, however, it is the tenants who are in rent arrears, and this, along with the current shortage of credit, may be contributing to the growing number of buy-to-let landlords facing repossession of their properties. According to the NLA, some 44% of landlords have been experiencing rental arrears in recent months.
Notwithstanding these difficulties, the buy-to-let sector saw an increase in business in the first quarter of this year, according to the Association of Residential Letting Agents, with more landlords buying properties than selling them, a situation which hasn’t been seen for two years. This is due to the availability of bargains on the property market, and for those in a position to get the finance, the buy-to-let market remains a good prospect for longterm investment.
Read more news