How do you cope if you are a Buy to Let Landlord
From about 2003 to 2007, thousands of Brits became Buy to Let landlords - purchasing property to let to tennants. Many of these buy to let mortgages were taken out on "self-certificate" with the borrower inflating what they were earning and many of the mortgages were interest-only, which leaves them vulnerable to negative equity.
The Council for Mortgage Lenders reports that
Part of the reason landlords arn't able to secure the rents they want is that many owner occupiers who are struggling with their mortgages are choosing to let the home out rather than sell at a loss, with the result that the rental market is flooded with supply.
So what should you do if you are a landlord?
1. Only about 30% of buy to let mortgages are on variable or tracker rates. If you are lucky enough to be on one of these mortgage deals, your payments will have fallen. Use the extra income to pay your debt down if the terms of your mortgage allow it. No one knows how long the slump in the property market will last. If you repay debt at least your expenses in the form of interest will drop, which means that you should be able to tough things out till the market rises again (as it always does). Note that some buy to let lenders can demand that you pay off any negative equity to bring the loan in line with the market value of the property, so don't hang around, start paying down the loan now, before you get the request.
2. If you are on a fixed rate mortgage, see if you can switch to a variable or tracker mortgage. You might have to work extremely hard to find a good buy to let remortgage deal though as some lenders have slapped upfront fees on new buy to let mortgages, of around 3% of the loan, which is prohibitive. There are some deals out there though, so get a mortgage broker to find them for you. The best buy to let deals are for those whose loan to value is low and where the mortgage payments are covered many times by the rent.
3. A big problem may be unpaid rent from tenants who have lost their jobs. However, these tenants should be in receipt of housing benefit, so you should still be able to get rent. If an unemployed tenant on housing benefit goes into arrears on the rent despite receiving the benefit, you can apply to the council for the money to be paid directly to you. Some tenants will try to not pay even if in a decent job, using the excuse of the recession to claim poverty. In these cases, make a money claim in the courts. Don't hang about - cashflow is everything when being a landlord.
The Council for Mortgage Lenders reports that
The number of landlords who are three months or more behind on their mortgage payments rose by 257 per cent between the end of 2007 and the end of 2008, as landlords failed to secure the rents they needed to meet their loan payments.
Part of the reason landlords arn't able to secure the rents they want is that many owner occupiers who are struggling with their mortgages are choosing to let the home out rather than sell at a loss, with the result that the rental market is flooded with supply.
So what should you do if you are a landlord?
1. Only about 30% of buy to let mortgages are on variable or tracker rates. If you are lucky enough to be on one of these mortgage deals, your payments will have fallen. Use the extra income to pay your debt down if the terms of your mortgage allow it. No one knows how long the slump in the property market will last. If you repay debt at least your expenses in the form of interest will drop, which means that you should be able to tough things out till the market rises again (as it always does). Note that some buy to let lenders can demand that you pay off any negative equity to bring the loan in line with the market value of the property, so don't hang around, start paying down the loan now, before you get the request.
2. If you are on a fixed rate mortgage, see if you can switch to a variable or tracker mortgage. You might have to work extremely hard to find a good buy to let remortgage deal though as some lenders have slapped upfront fees on new buy to let mortgages, of around 3% of the loan, which is prohibitive. There are some deals out there though, so get a mortgage broker to find them for you. The best buy to let deals are for those whose loan to value is low and where the mortgage payments are covered many times by the rent.
3. A big problem may be unpaid rent from tenants who have lost their jobs. However, these tenants should be in receipt of housing benefit, so you should still be able to get rent. If an unemployed tenant on housing benefit goes into arrears on the rent despite receiving the benefit, you can apply to the council for the money to be paid directly to you. Some tenants will try to not pay even if in a decent job, using the excuse of the recession to claim poverty. In these cases, make a money claim in the courts. Don't hang about - cashflow is everything when being a landlord.
posted by teatreebergamot at 2/23/2009 02:26:00 PM
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