Buy-to-let mortgages, which have in the past shown better performance than the overall market in terms of payment profile, are beginning to suffer according to the latest quarterly data on arrears and repossessions published by the Council of Mortgage Lenders (CML).
The data was released shortly before a cross-government package of new measures and reforms to provide real help to families at risk of repossession was announced by the Chancellor Alistair Darling in the Pre-Budget Report.
In the third quarter the payment profile of buy-to-let lending has worsened more rapidly than the market as a whole. Reasons include falling rents and an over-supply of rental property in some areas, resulting in some landlords being unable to let their property or achieve high enough rents to support their borrowing commitments.
Fraud is also likely to have been a contributory factor. In addition, in line with the rest of the market, it is more difficult to sell as an exit strategy, while the availability of new buy to let mortgage finance has contracted and criteria have tightened.
At the end of September, 1.58 percent of buy-to-let loans were in arrears (up from 1.10 percent at the end of June).
The CML reports that 1.44 percent of all mortgages were at least three months in arrears at the end of September 2009. This was up from 1.33 percent at the end of June.
The number of cases in arrears at the end of September was 168,000. This is 8 percent higher than the 155,600 at the end of June.
The number of buy to let mortgages taken into possession in the third quarter was 900, the same as in the first and second quarters of the year, representing 0.08 percent of all buy to let mortgages (compared with 0.1 percent across the mortgage market as a whole).
On the basis of the arrears experience, it seems this lower repossession rate in the buy to let sector is unlikely to be maintained looking ahead.
However, a range of factors will affect the number of buy to let repossessions, including the extent to which buy to let lenders appoint receivers of rent as an alternative to repossession. This may be a preferable strategy in many cases where tenants are paying their rent but the landlord is not paying the mortgage.
The CML also reports that 0.1 percent of all mortgaged properties were repossessed in the third quarter of 2008, up slightly from 0.09 percent in the second quarter. By number, this equates to 11,300, 12 percent higher than the 10,100 in the second quarter. The CML continues to expect the total number of repossessions this year to be around 45,000, as forecast in October 2007.
CML director general Michael Coogan said: “The CML and lenders are absolutely committed to ensuring that repossession is only ever a last resort. Most borrowers who face payment problems successfully keep their home by working with their lender - anyone worried about mortgage payments should contact their lender at the earliest opportunity, before arrears start to build up.
“The government has taken some helpful steps towards targeted support for some of the most vulnerable households, but with a worsening economy now needs to make it a priority to go further. Increased help with housing costs is needed for a wider range of borrowers facing unforeseen repayment difficulties where there would otherwise be little prospect of early improvement.
“Looking ahead, conditions in the wider economy suggest a worsening picture for mortgage arrears, however carefully lenders handle their treatment of borrowers in difficulty. But while lenders cannot change the underlying causes of financial difficulty, such as unemployment, they can make sure that their response to borrowers is constructive and seeks to avoid repossession wherever other solutions can be found.
“That is what lenders are doing, meaning that the number of repossessions is likely to be contained to the levels we forecast at the beginning of the year, despite the worsening in economic and funding conditions through the year. We and our members are continuing to look at every possible way of minimising repossessions, consistent with considerations of the borrower's financial prospects.”
