Arrears are set to rise in the buy-to-let market, as more landlords face having to deal with tenants who cannot keep up their rent payments.
According to research by Templeton LPA, a specialist practice of LPA Receivers, the number of court orders to evict tenants is up by 11%.
In the last quarter, 24,966 tenants faced eviction notices – an increase of 11% on 22,558 a year ago.
The number of tenants in severe financial difficulty has also shot up in the last three months, says the firm.
During the last quarter of 2011, there were nearly 11,400 more tenants over two months in arrears than in the same period of 2010 – a rise of 18%.
At the end Q4 2011, nationally there were 78,970 tenants in England and Wales in severe arrears.
Paul Jardine, director and receiver at Templeton LPA, said: “A growing minority of renters are falling deeper and deeper into payment difficulties, and the number of severe arrears cases is rising.
“While the wider tenant mix has changed since the mortgage market downturn – with a greater number of financially sound yet frustrated first-time buyers – a growing number of tenants are seeing their job prospects affected by the UK’s economic malaise.”
He said buy-to-let mortgage arrears have not yet felt the impact of growing severe tenant arrears and evictions, but this would change this year.
In the last quarter of 2011, the number of buy-to-let mortgages more than three months in arrears fell by 7% compared to the previous quarter, representing an annual decline of 17%.
However, at 26,300, there are still more than five times as many buy-to-let mortgages in severe arrears compared with Q3 2006.
Jardine said: “The growing level of severe tenant arrears has yet to filter through into mortgage payment problems for landlords.
“Mortgage rates have kept monthly payments low, but there has also been a change in landlords’ behaviour. With capital gains falling by the wayside in the past six months, rental income has become the most important component in an investor’s annual return – but it also pays a landlord’s mortgage cheque.
“As a result, many landlords are being less lenient with tenants facing initial payment problems, and are looking to use court orders to replace tenants quickly in expectation of finding a financially sound substitute – and potentially an increased rent.
“Nevertheless, we expect that mortgage arrears will climb this year.
“We anticipate that both overall arrears and severe arrears will rise, and this will feed into increased tenant evictions and hamper a growing number of landlords’ ability to meet their monthly mortgage costs.”
Comments
Dave
I am sorry but you are a complete idiot. As someone who worked front line lkending millions a month for Nationwide I am afraid you are talking complete nonsense and I will have no more of it and will now take Ray's advice.
Your problem Dave is you have a set agenda and preferred outcome and use the facts and your emotions and desires to make your statements fit the 'facts' as you see them or how you'd like them to be.
If you think banks are going to pile back into the market and lend shedloads of money (as compared to now) just because prices are lower you are totally deluded.
This thread now deleted from my system.
banks make money by lending...houseprices after a 30-50% fall will be a good risk and funds will be funnelled into this area as it will be profitable and risk adverse.
just because things are as they are now,doesn't mean they cannot change
@Dave
Rabt is right - not 100% but certainly in his later comments on availability of money.
Ypou are taking far too simplistic a view coupled with your own personal preference, for whatever reason, for prices to come down. I think they'll continue to slide but a crash is unlikely unless, of course, the entire global economy goes down the drain dragging ours with it. This is possible but in my view not probable.
You seem to live in a world where house prices crash to say an average price of £100K, buyers like you (or your kids) then come out to play and expect to then borrow 90% at least LTV and probably 95% or even 100%. It just isn't going to happen.
Even if the banks did have the money to lend - and in my view they will not - they would not do so on the LTV levels you want. I keep saying it is ENTIRELY different this time round because jobs are so insecure, pay rises non existent, unemployment going to rise and the banks are battening down the hatches.
Lend more - lend less is far more likely. You are of course right - demand and supply dictate everything in a free market and if sellers need to sell then they will have to reduce prices.
But as I have said before (and as Rant refers to with "cash is king" it doesn't mtter if the average house price is £40K if you haven't got a job and don't have a deposit you can't borrow money - assuming a bank will lend it to you anyway on a depreciating asset.
End of my contributions to this thread
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It's not the house price at £160K that is unsustainable Dave it is the inability of those on that £26K level of salary to buy into the market at that price.
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simple economics suggest that prices will fall as people that have to sell have to meet buyer criterea and not their own expectations.
surveyors will then use these as comparables and so the spiral begins
Average UK house prices did hovver around 50-55K from the end of 1990 until the end of 1996 (Nationwide's data).
Banks' balance sheets in this country were nowhere as near exposed to property when the late 80s bubble burst as they are today. Lenders were therefore far more willing to repo those behind with payments than they are today.
If the current modest decline in UK house prices is to gather speed, that seems much more likely to come from a second credit crunch re the Euro crisis rather than a hike in the bank of England base rate (which happened in the early 90s crash). Should prices come down, more people would in theory be seeking to borrow money though.
If half a million people want to borrow 200K to buy a house, that is the same total lending as a million people wanting to borrow 100K. Thus, the amount of money in the lending pot would still need to be significant. How likely is that in a second credit crunch? In such a scenario, LTVs for the cheaper loan deals would still remain high and "cash would be king".
Dave
I never mentioned 1998 I said it was the 1988 major price fall that was corrected by 1991/92.
It's not the house price at £160K that is unsustainable Dave it is the inability of those on that £26K level of salary to buy into the market at that price.
I doubt the average house price was £60K in the mid 1990's
You are right that these boards are for debate - but not one on one exchanges.
well I can assure you that you could pick up a flat within the m25 during the mid 90s for 20-40k and probably the rest of the uk too
mid 90s the average salary was 15-18k and you could buy loads of property for 30k...the average houseprice was around 60k
the average salary is now 26k so I see no reason why some flats won't fall in price to 50-70k
I have no idea about the correction in 1998 'cos the wasn't one as far as I can see or remember...it was 1990-1996
with average salary at 26k average houseprices at 160k is clearly unsustainable
don't chicken out of a debate....thats what these boards are for
@Dave (and anyone else daft enough to agree with his opinions).
I am going to take Ray Evans' advice because as usual he is correct. You simply do not know what you are talking about Dave and my guess is you are a wishful thinking young HPCer but as you didn't identify your interest as requested in my first post I don't know and really do not care.
Dave I worked for Nationwide from 1971 to 1994 and so have been round this particular block three times before. I can tell you CATEGORICALLY that at no time since stats began has the ratio been 2x income for any borrower, never mind specifically for ftbs.
Why?
Because the average income now is I think £27K so my guess is that in the early 1990's it may - I say may - have been £20K though I doubt it was that high.
One thing is for sure - in the early 1990's and following the last serious correction in July 1988 (about 22%) and which I assume is the one you are refeering to the correction/bounce back was completed within about 3 years and so by the early 1990's.
At which time the average property price WAS NOT £40K which it would have to be to make your ludicrous plucked out of the air figures stack up.
I will take Ray's advice and debate with you no more Sir as you patently are just a wishful thinker rather than a rational one.
despite history informing us that all bubbles burst and that even when you try to prop them up they still correct(japan still 40% less than 1991)...you describe this as 'way out'
this is exactly why bubbles exist in the first place,because people just cannot see the wood from the trees through personal greed or vested interest
@Industry Observer.
May I respectfully recommend that you stop wasting your energy on this Dave. It is obvious now that his 'way out' opinions are not open to query at all. I for one will not enter into a dialogue again with him
thats where you are wrong...I think whats gonna happen to housing is great news for the future of this country
when our kids can take a stake then they can grow the economy with new ideas and increased productivity.
@Dave
Ever heard of the Matrimonial Homes Acts 1886 and1967 and the more recent Matrimonial Homes and property Act 1981 ?
What makes you think the whole of a matrimonial home is ever up for grabs? Make hubby bankrupt by all means but the only way more than 50% of a matrimonial home could ever be taken is if the missus was also named on all the BTL loans - and that is extremely unlikely.
The current situation is of course dire for house prices - but that doesn't mean end of the world as you anticipate it. The big difference this time round is the employment (or unemployment) situation and above all lack of lender funding.
lenders will go straight for bankruptcy on the basis of insolvency
anyone can do this if you owe 750 pounds
all assets then go into the bankruptcy including the family home whether they then force you to sell or take a charge will be decided...they will not simply let you walk away
in the 90's crash 90-100% loans were in abundance because ftb property was 2 x income
if you think the current situation is anything but dire for property prices then god help you
@Dave
Yes it is you as I recognise the tripe you are now re-peddling.
As I said on your economics planet banks lend 100% into an already perceived falling market do they? When and where does the risk fall for a lender when they are lending against on a suspect asset?
What on earth makes you think banks are any keener to lend when prices fall compared to when they are static or falling slowly?
If you genuinely believe that a house price crash will suddenly make banks believe that high %age lending is a good idea you really are totally daft.
Anyway following the recent report and recommendations it looks highly likely that any LTV over 85% will be illegal well within the time frame you set out (just as it has been in France and Germany for over 20 years).
I will waste no more time debating the economics of the housing market looney bin with you Dave.
Foresight? Me lacking it - that's a laugh!!
Basic economics common sense is what you need a good dose of.
One last question - if the BTL loan is not secured against the family home what makes you think any lender has any claim on it?
this is where you lack the foresight and assume the current situation will continue as it is.
as prices fall banks will start lending higher % loans as the perceived risk reduces.
if prices fall 30-50% which is likely,90-100% mortgages will return and people will buy rather than rent
its quite possible that houseprices fall 30-50% and stay there for 10-20 years
whose gonna rent the buy to lets out there?...lenders will force btl to sell and take the owners family home if it has equity
@ Dave
I think you are the Dave I have seen mercilessly pilloried in the past for silly comments and if you are then you are strting off in 2012 in the same vein.
Are you an HPCer, estate agent, BTL Landlord, letting agent or what? Either way Dave what on earth makes you think the scenario you paint will come to pass?
Sure Landlords may suffer a few months arrears but presumably given demand at the moment any evicted tenant is soon and easily replaced with a new one who presumably can pay.
Your last statement is so ridiculous it hardly merits more sensible comment and I assume was 100% tongue in cheek but in case not.......
If the BTL Landlord only loses his property if the tenant does not pay the rent.
If the tenant does not pay presumably unless he is a won't pay as opposed to a can't pay (a category that need stripping out of stats such as these anyway) then can you please tell me on your economics planet how evicted tenants are going to raise a mortgage?
Because they are not going to on this one as not only don't they have any deposit, or earnings, but will also have a Court Order against them.
"Many BTL Landlords" are small fry Dave and will be suffering such losses on only one or at most two properties. The big boys won't be hurt by this at all.
As I have said before anyone hoping the housing market is going to hell in a handcart and that they are then going to be able to buy are deluding themselves - the funding just won't be there.
...and of course this will be accelerated by the government's caps on housing benefit.
According to Chartered Institute of Housing - "families face choice of cutting food bills to pay rent or moving out".
it will also lead to the bankruptcy of many a buy to let landlord
especially if he has equity in the family house
all this with 0.5% interest rates
bizarrely..the evicted tenants will probably end up buying the trashed btl portfolios