Landlord mortgage arrears - A practical guide
Times are good for landlords. Rising demand has pushed rents to record highs, and many are now preparing for a future in which renting becomes the norm.
But despite the wealth of good news, landlords still face a range of pressures. Recent figures from UK Asset Resolution, the owner of mortgages previously held by Northern Rock and Bradford & Bingley, suggest that many landlords could be facing a mounting mortgage arrears problem. The lender says it has 100,000 borrowers who are at risk of default – and of those, the majority are buy-to-let customers.
Mortgage payments are a constant concern for landlords. If you are worried about keeping up with your mortgage it is important that you act quickly.
What do the statistics show?
Figures from the Council of Mortgage Lenders (CML) suggest that buy-to-let mortgage arrears actually fell slightly during the first quarter of 2012. Some 1.7 per cent of all buy-to-let mortgages were more than three months in arrears. This compares with around 2 per cent of owner-occupier mortgages.
Repossessions have remained stable in the buy-to-let sector for more than a year, with the rate running at 0.12 per cent. This is higher than the 0.8 per cent seen in the owner-occupier sector. The CML attributes the difference to a desire amongst lenders and the courts to “keep home-owners in their homes.”
Despite a slight dip in the first quarter, mortgage arrears remain a real problem for many landlords – and it is a problem that some expect to see grow in the coming months as financial pressures on tenants become ever more severe.
What should I do if I fall behind?
If you are struggling to pay your mortgage, or if you think you may run into difficulties, it is important that you act quickly. All too frequently borrowers simply ignore the problem – but by tackling your arrears head on you can help to ensure that they are dealt with as quickly and as painlessly as possible.
Your first step should be to contact your lender directly. Your lender will have a department dedicated to dealing with arrears and other payment issues, and it will be staffed by people specifically trained in this field.
Your lender will need to know the nature of your problem, and whether or not it is likely to be a long-term one. Having discussed your difficulties, your lender may agree to one of several courses of action. They might, for example, agree that you will pay a reduced monthly amount for a certain period of time. Alternatively they may agree to a ‘payment holiday’, following which you could pay the arrears off over a specified number of months. They might also agree to extend the term of your mortgage.
Before you contact your lender you may wish to put together a written budget to help you work out exactly what you can afford. By listing all of your monthly income and outgoings you can get a firmer grasp of the payments you will be able to make – and this will make the process of negotiation much easier.
It is vital that you stick to the payment plan you agree with your lender. If you fail to do so, your lender will eventually begin the process of repossession. Prior to this you will receive a notice of default. Do not ignore this; it will explain what your lender intends to do. It is also important to understand that you may still be able to come to an arrangement with your lender provided that you contact them quickly.
Your lender cannot repossess your property unilaterally. Instead, they will apply for a court hearing at which a judge will determine whether or not the lender will be granted possession of the property. It is vital that you seek independent legal advice at this stage or earlier. It is also vital that you attend your court hearing.
What about my tenants?
Your tenant will receive notice that a repossession hearing is going to happen. Provided that you have a buy to let mortgage, and provided that the tenancy was an assured shorthold and within its fixed term, that tenancy will become binding on the lender. If the tenancy is not binding and repossession occurs, the tenant can apply for eviction proceedings to be delayed for up to two months.
If you are concerned that your property might be repossessed, it is vital that you seek independent legal advice.