Buy-to-let investors are drowning in debt
Increasing numbers of landlords are deep in the red, and that's a disaster for all of us.
I’ve only rented property once, while I was at Uni, and I’d be lying if I said it was a pleasant experience.
Our landlord, for want of a better phrase, was utterly useless. For the best part of two years we had to put up with a kitchen door with a foot-shaped hole in it (a present from the previous tenants).
Thankfully, I’m well aware that such a shoddy experience is not the norm, and that the vast majority of landlords provide a great service.
A sea of debt
However. despite the vital role landlords play, an increasing number are falling perilously deep into debt.
A new report from debt solutions firm IVA.com has found a 53% jump in the number of buy-to-let investors struggling to pay their creditors.
In the firm’s own words, it has seen “near meltdown” among buy-to-let professionals, with typical debts in the range of £163,000 to £201,000.
A tough time for landlords
The last few years have seen some seriously difficult times for landlords. Not only has competition among the buy-to-let sector all but disappeared, leaving them with very few refinancing options, they have also seen serious problems with rental arrears, as tenants lose their jobs, or struggle with their own debts.
At the tail-end of last year, the National Landlord’s Association highlighted the problems many landlords have faced recently. Nearly three quarters of landlord members had experienced rental arrears – and almost half of those landlords had seen their tenants fall behind on rent in the preceding 12 months.
Things have improved
Thankfully, things have improved somewhat for the beleaguered landlord. Figures from the Council of Mortgage Lenders in February revealed landlord arrears levels had fallen 37% year-on-year, while repossessions had also dropped 25%.
While this is welcome, clearly a large number of landlords are still struggling, and in need of some serious help.
A helping hand with the mortgage
A huge problem in my view is that when the Government announced its various schemes to help struggling borrowers, it completely ignored buy-to-let landlords.
So while mainstream borrowers can take advantage of a number of different vehicles to help them get through their difficulties, no such help is available to landlords, who are forced to carry on regardless, even as their tenants fall further and further behind on the rent, and as a result they miss their own mortgage payments.
A boost for first-time buyers?
At this point, a fair number of you will no doubt be thinking: “Good."
Related how-to guide
Become a buy-to-let landlord
How to pick the right property, get the right mortgage, take out the right insurance, choose the right letting agent and most importantly, unravel all that red tape!
See the guideBut, if buy-to-let landlords are struggling, there will be fewer investors sniffing around the traditional first-time buyer properties, thereby enabling them to snaffle up a few bargains.
Not so good for the market
However, I’m not so sure landlords drowning in debt can be seen as a good thing for the rest of us.
If you are a tenant, for your landlord to be struggling to get by is a disaster. For starters they may be unable to afford the improvements that your rented home desperately needs.
3 easy ways to reduce your mortgage bills
If the worst then happens, and the property is repossessed, you face huge uncertainty. While the lender will initially appoint an agent to collect the rent on their behalf, they may choose to sell the property. And where does that leave the tenant? You could be homeless in a matter of weeks.
It's also a problem for future renters. Buy-to-let investors are currently filling the hole left by the sale (and non-replacement) of social housing two decades ago. There is a property shortfall as it is, and if landlords are forced out of the market by this debt, that shortfall will only get worse. As a result, not only will choice disappear, but so will competition, meaning rents will creep up.
It’s not exactly good news if you already own your home either. A street full of repossessed rental properties is not going to do much for your own home’s worth is it?
- Watch this video: Cut the cost of your mortgage! or adopt this goal: Become a buy-to-let landlord
Not popular – but vital
I’m not a buy-to-let landlord, nor do I aspire to be one. But whether you like it or not, landlords provide an essential service in the UK’s property market, one that the State has neither the resources nor the inclination to match.
And if they are allowed to drown in debt, we will all suffer as a result.
So I think landlords should be afforded exactly the same help as normal borrowers in order to give them a helping hand out of debt - and that it’s in all of our interests that they are given a boost.
But what do you think? Let us know using the comments box below!
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Comments
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The only reason borrow-to-let seemed like such a good bet was rampant house price inflation, caused in part by the borrow-to-let boom. But like all bets there is a chance that you could loose so I don't see why prudent people should pay for other people's folly. The fact is that house prices are just too high, and it is no good blaming the banks for not lending more - if the banks had not let so heavily in the past then we might not be in this mess. No one should ever be allowed to borrow more than they can afford to pay back and 100% mortgages are a complete joke. Until house prices come in line with actual earnings this country will be on its knees, as over priced housing is one of the fundamental causes of many of the issues we have today. I really hope that this government understands this and puts us on course to correcting house prices and the greater economy, though I am sure that many people won't be very pleased.
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Have a meeting down the pub and set up a charity for down on their luck Buy to let landlords; it was down the pub half stoned that most of them got in to it in the first place or in some wine bar. You speculate to accumulate or lose your shirt...
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[b][url=/profile/Andrrew.aspx]Andrrew[/url][/b] said [b]"God bless the National Parks - thats correct. We can sell the entire site, but only as one complete unit, not as separate bits"[/b] I see. I assume that the development was allowed as a single unit because the planning department saw that as preferable to multiple independent businesses. In this particular case the restriction may be logical because of the nature and overall use of the site, although I'd personally allow multiple smaller 'businesses' to form as that aids competition and may increase reach (multiple operators = more tourists). [b]"The PP puts strict limits on what can be done, and how long any one person can stay (28 days), and yes, we do pay business rates, CCL on fuel etc,"[/b] This seems fair enough. Your business model is discretionary and so you're a commercial operator working in a commercial zone doing a job which attracts discretionary spending into your local community which, in turn benefits. This is how it should work. [b]"but as of last years budget holiday cottages are no longer considered by HMRC a business [...] Alastair Darling has, according to the Yorkshire Tourist board, put 2500 jobs in our area at risk."[/b] My dislike for this government is well known and it's the issues like this which really matter but are rarely heard. Interestingly enough, a large part of Yorkshire and surrounding areas is supported by public sector spending. In other words because so many people in and around Yorkshire are employed in the public sector, any reduction in their numbers will hit your local economy hard. And you'd never guess which party was warning us about that.
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09 June 2010