Rental repossession numbers set to jump

The number of rental properties claimed back by landlords after tenants fail to pay their rent is expected to rise this year, official figures suggest.

The latest data from the Ministry of Justice shows that the number of properties taken back by banks, building societies and other home loan providers after owner occupiers fail to pay their mortgages has stabilised at low levels in the last few years.

However, an increase in the number of repossession claims and a sudden significant spike in the number of warrants for future repossessions by landlords suggests the instances of tenant eviction could rise by almost 10 percentage points in the coming months.

Taking back control

With the most recent figures showing that, until now, the number of rental property repossessions has remained stable at about 8,500 every three months, the number of claims made to the courts by landlords wishing to repossess their properties after tenants fail to pay their rent crept up at the end of last year.

Moreover, the number of warrants issued by those courts to allow legal repossessions rose to more 15,500 in the last three months of 2017.

Meanwhile, although the number of landlord repossessions has historically been highest in the north-east, the latest figures show London is now emerging as the national hotspot for both rental and owner occupier repossessions.

Mark Pilling, managing director of Spicerhaart Corporate Sales, says: “The figures reveal that there has been a significant change in the repossessions landscape with London having the highest number of landlord repossessions in the country and the third highest residential repossessions.

“This marks a real shift in the past six months as traditionally, the highest number of repossessions have been in the North, Wales and the Midlands. We have also seen a growing trend of increasing repossessions in London, and it is not just lower cost houses, we have also seen an increase in repossessions of properties worth multi-millions.

“I think this is becoming more prevalent as interest-only deals from the Nineties come to an end and landlords in London struggle to sell their properties at the prices they need to in order to clear their debt.”

The average amount of time between a claim being made by a landlord and a rental property being legally repossessed has increased to more than 41 weeks, the MoJ figures reveal.

Protecting homeowners

Meanwhile, for owner-occupiers unable to pay the mortgage on their own home, the average amount of time between a claim for repossession being made by their mortgage lender and the point of eviction has increased to almost 122 weeks – more than two years.

Up from just a few months at the height of the financial crisis, the long delay between defaulting on a loan and the property being repossessed is partly due to government intervention.

In a bid to introduce greater protection for those unable to pay their bills, mortgage lenders have been encouraged to give borrowers more time and more opportunities to get on top of their arrears, with courts also asked to give consumers the chance to turn their financial circumstances around before losing their home.

But the longer lead time could, ultimately, be more detrimental, Pilling argues.

“[The figures suggest] not enough is being done to help those in arrears to find a solution quickly enough,” he says. “Leaving someone [with] a property when they have no way of paying prolongs the inevitable for them.

“If the property ultimately gets repossessed it is not good for either borrower or lender to drag it out for years. For the borrower they have only delayed the inevitable, only they will now have incurred far greater debts than they would have done if the property had been repossessed more quickly.”

At the same time, the property is likely to have depreciated as those landlords and owner-occupiers in danger of repossession rarely spend time or money on maintaining their home. This means that the property is worth less when it comes to sell or it needs a lot of work done on it before the sale.

“This is likely both to delay the sale and can mean the property sells for a lower price, which will directly result in less money being returned to the borrower or their debts being higher,” he adds.

True cost of buy-to-let

The figures on landlord repossessions in particular come at a time when separate government figures suggest 175,000 privately rented properties may have been empty for at least six months of the last year.

Analysis from insurer Dlighted shows landlords could be left at least £774 out of pocket for every month their property remains empty – nearly £10,000 a year – when it comes to covering mortgage, council tax and vacant property insurance costs.

Figures from the Homeowners Alliance suggest that if an investor owns a property with a buy-to-let mortgage on an averagely-priced property – with a typical 75-80 per cent loan-to-value ratio – they will be repaying about £510 a month, or £3,060 over six months.

Elsewhere, the Government announced a 100 per cent council tax premium on empty properties last November. With the average annual council tax for a band D property currently £1,591, that means extra costs for landlords of £133 every month.

At the same time, most insurance policies are invalid if a property is vacant. MoneySuperMarket data suggests the average additional cost of insuring a home if it is unoccupied is £131 per 30-60 days.

Utilities suppliers will also typically charge property owners a service charge, even if no gas, electricity or water is being used in the property.

Ratings agency Standards and Poor’s predicts that half of buy-to-let investments will be loss-making by 2021.