Whats happening with repossessions
Repossessions are very much a ‘win’ and ‘lose’ situation. For those who end up losing their home back to the mortgage lender, it’s a miserable time. Although the lender will try to secure the best price for the property, all of the costs will be deducted including the agent’s fees and legal costs as well as interest on the money owed and they may, as a result, end up owing the lender money.
However for the person who picks up the repossession it can be a good bargain buy, especially if holding onto the property to rent out.
At the moment though, trying to find a repossession to purchase is very much like finding a needle in a haystack. Latest figures from the Council of Mortgage Lenders shows the number of properties repossessed in 2016 fell from 10,200 in 2015 to just 7,700 in 2016. And more people are keeping up with payments as the number of people behind by 2.5% or more of their outstanding mortgage balance slipped to 88,200, the lowest since records began in 1994.
This is a far cry from recession repossession days in 1991 when 75,500 were taken back by lenders and, although fewer, 48,300 in 2009.
To put the level of repossessions in context, there are currently 0.8% of homes with mortgages outstanding with repossessions accounting for just 0.02% of all mortgages. This is good news for homeowners, but not ideal if you were hoping to build a portfolio based on buying up repossessions as it’s likely there are far more people chasing a bargain than there are repossessions available.
Part of the reason for such low repossession rates is due to historically low interest costs, but also because a lender does have to show they have done everything they can to ensure possession was the last resort. Interestingly though, this is more the case for homeowners as buy to let mortgages are not regulated in the same way; a lender can appoint a receiver (England and Wales), work out if the landlord can recover and also continue to let to the tenant once they have repossessed the property.
So where would you look for a repossession? According to the Ministry of Justice, “93 local authorities have
no repossessions recorded”. Mortgage possession claim rates are at their highest in Blaenau Gwent and Barrow in Furness and if you are after a bargain repossession potentially with sitting tenants, the area with the highest rates of landlord possession action is, perhaps surprisingly, London; Newham has the highest rate followed by Barking and Dagenham and Waltham Forest.
But be aware, buying a repossessed property isn’t always straightforward. For example, the property will typically be marketed up until the point of exchange due to the lender’s responsibility to secure the highest price for the property. So you may end up paying all the costs to buy a property without securing it and with no recourse.
It’s also worth bearing in mind that utilities may have been turned off and need reconnecting and you tend to ‘buy as seen’ as there is no seller to ask questions to, so thorough surveys are required. Things like the plumbing, electrics, heating and drainage should be checked, unless you know they need replacing, especially if the property has been empty for a while. All of this costs money, which is fine if you secure a bargain, but costly if you pay for all the checks and then it’s sold to someone else at the last minute.
For further help or assistance with your buy-to-let property please feel free to contact our friendly team today.