Mortgage advice for Buy to Let Landlords

The recession has not appeared to have greatly dented the buy to let market but where does the novice landlord stand if the tenant doesn’t pay their rent and as a consequence, they can’t pay their mortgage?

The so called ‘Sub Prime’ lenders can be very quick off the mark to recover their money when there are mortgage arrears and have been widely criticised and in some cases penalised for being too keen to use possession instead of working with their borrowers to find a solution.

Back in October 2009 the Financial Services Authority imposed a penalty of £2.8 million on major mortgage lenders G Mac and ordered them to pay a sum of £7.7 million in redress to complainant borrowers in relation to their conduct with their customers. The decision has heavily influenced proposed changes being brought in by the FSA to protect borrowers from unreasonable practices of mortgage lenders. (you can see the final G Mac notice at www.fsa.gov.uk/pubs/final/gmac_rfc.pdf).

In the Financial Services Authority’s ‘Mortgage Market Review, published in January 2010 it states

“The findings from our thematic reviews demonstrated that firms were often too quick to take repossession action, focussing too strongly on recovering arrears without reference to the borrower’s individual circumstances. In addition, some firms explored very few forbearance options before taking legal action against borrowers. We observed these poor practices across the mortgage market, though it was more prevalent among the specialist lenders and third party administrators”. (4.6)

What should they be doing?

The Mortgage conduct of Business rules / Mortgage Pre Action Protocol

The 2 main tools that should help a borrower in mortgage arrears are the Mortgage Conduct Of Business rules (MCOBs) and the Mortgage Pre Action Protocol (MPAP).

The over arching aim of both instruments is that possession should only be used as a last resort, after all other avenues have failed. There are a range of what are known as Lender Hardship Tools, that should be explored before a lender applies for a possession order.

The MPAP was brought in back in November 2008 but by October 2009 it was evident that adherence to the protocol was patchy and inconsistent so for all mortgage possession claims initiated after 1st October 2009 lenders must produce for the court a new form called an N123, which details their actions before possession.

Lender’s behaviour

It has to be said that some lenders are very good at negotiating and exercising sensitivity and a generally helpful attitude to borrowers in difficulties but in my experience the majority fall well short of that standard, sometimes behaving in an obstructive and evasive manner.

This behaviour has not escaped the attention of the FSA and their Mortgage Market Review proposes changes to the MCOBs to tighten up things like excess and unfair charges being levied on borrowers in arrears.

Lender hardship tools amount to what is termed ‘Forbearance’ on the behalf of the lender. At present the MCOBs relating to forbearance are guidelines only, which means that even if a borrower in trouble offers a certain deal or arrangement to the lender, they are not obliged to accept it, however the Mortgage Market Review recommends changing these guidelines into rules.

Protecting yourself from possession

In response to the recession the government has introduced high profile measures such as the over hyped but in reality, under effective Mortgage Rescue Scheme and the Home-owners Mortgage Support package but these are not available for buy to let mortgagors.

As we saw above, at the moment negotiating forbearance is a bit of a lottery. The worst lenders don’t give anything away and will ask you to make an offer without hinting at what they will accept.

Making an offer to your lender

Remember you have to offer something that amounts to a reasonable plan of action, you will be wasting your time if you just ask them to allow you time in the hope that your situation might improve. Similarly asking them to allow you not to pay while you chase your tenant for their arrears is not a strong argument.

• They can extend the life of the mortgage, which will reduce the monthly payments you make.

• They can grant you a payment break of a short period and tack the missing payments onto the end of the mortgage.

• They can reduce monthly payments for a short time

• They have the power to freeze charges and fees while you get yourself back on your feet.

• Where there are arrears but you have made regular monthly payments of say 3 or 6 months you can ask them to Capitalise the Arrears, which means to swallow them up into the mortgage as a whole.

Some lenders have strict lending covenants which may prohibit them from capitalising the arrears but if so you can ask them to exercise their discretion in accordance with a case law of Cheltenham and Gloucester Building Society v. Norgan 1995 which is a case where the judge allowed a borrower’s appeal against possession on the basis that if the arrears could be paid off during the life of the mortgage then that measure of forbearance should be allowed.

Always bear in mind that your contract with your lender is a 2 way street, you are their customer and it is strictly business. They can modify their deal with you in pretty much any way they choose as long as you have a sensible financial arrangement to propose.

If your lender takes you to court for possession it is wise to check both MCOBs, particularly rule 13, and the MPAP to see if they have covered all recommended pre actions before applying for possession.

If you try to negotiate with your lender but hit a brick wall each time or if they keep rejecting reasonable proposals and keep pushing for outright possession then you could file a complaint to the FSA itself for unfair treatment – remember the FSA ordered G Mac to pay some £7.7 million in redress to disgruntled borrowers and the FSA’s enforcement division are currently investigating 6 other firms on similar grounds and while you are lodging your complaint with the FSA let your lender know what you are doing, it might just be the leverage you need.

Ben Reeve-Lewis

About Ben Reeve-Lewis: Ben was the Tenancy Relations Officer for Lewisham Council for 11 years, prosecuting landlords for harassment and illegal eviction. Now he is a freelance housing law training consultant with a more balanced approach, delivering housing law courses for the Chartered Institute Of Housing, Shelter etc. His aim now is to help the housing world work as a interdependent system that benefits all

It feels like an on-slot of scammers have been using my sites to create bogus listings the past 10 months. They try to cheat future tenants out of their deposit money. I have been combating them for the past 6 months and I have learned a lot about how they operate.

I thought I would share with Tessas readers how I track down fraudulent rental listings.

Price Is Way Too Low:
If I see a rental listing come in that looks much lower than the others in the neighborhood, that is when my eyebrows go up and I pull up my chair for a closer look. Scammers are impatient, and with a low price they can get leads quickly.

Free Email Address:
The next step is to see if they are using a free email address like Yahoo, Gmail, Hotmail etc. Scammers only use free email services they can hide behind.

No Phone Number:
Most of the time the scammers will not list a phone number to call; they will only want to communicate by email. Most legitimate rental listings include a phone number. If none is listed, I look even further.

Exterior Photo Does Not Match Google Street View:
Google traversed American streets a few years back, getting a full street-viewto accompany their maps. I understand that Google has now started this project in England. This becomes a powerful tool for detecting scammers because many times they do not use the photos from the real house, so you can check the listing photos against Google Street View.

Duplicate Content Found On Another Listing:
Most of the scammers I deal with are from Nigeria. They want to blend in with the other listings so instead of writing the description of the rental themselves, they copy it from other rental ads. So, I Google paragraphs of the content to see if I can find a match with different pictures, address or price. This is a sure sign of a scam.

In conclusion
A good rule to follow to avoid becoming a victim in one of these scams is to deal with the owner of the property directly. When renting homes, meeting the property owner at the property is always a good practice. This helps you verify independently whether the offer is bogus or not.

*****

Bio: Dave Dugdale has been in the online rental advertising business for 5
years with his sites RentVine.com and PickRent.com. He was the first to write a blog on the rental ad industry, and the first to podcast interviews of industry experts in property management (all for a USA audience). Dave has also been leading the way in better detection of rental scams by sharing his database of blacklist email addresses with competitors.

Over the last few weeks data that has been released has edged towards the positive. Although some opinion is predicting that further falls are inevitable, more commentators such as the Nationwide Building Society and the RICS are predicting an end to the fall in prices, and even a slight rise by the end of the year.

How have Landlords fared in all this uncertainty and what are the prospects for Landlords for the rest of summer 2009?

Landlords have certainly not been immune to the falls in the Housing Market. As confidence and turnover fell in the Housing Market, so then as a direct result we have seen an oversupply of rented properties, leading to a reduction in rents achieved.

We have heard tell of a swelling in the numbers of Landlords, the so called new breeds such as the distressed Landlord; the reluctant Landlord and the accidental Landlord. These Landlords i.e. those who did not want to sell in a failing market now sit alongside the more traditional investors and professional Landlords.

What then are the Prospects for the rented property sector?

Clearly, the love affair that the British enjoy with property shows no sign of diminishing. A recent Mintel Poll in the Sunday Times showed that 33% of adults believe now is a good time to invest in property and more than 50% say property is still a good long term investment, despite the recent crash.

It is suggested that large institutional investors are now looking towards the rented sector where they can now see an improvement in the potential yields available, rising on average from 4% to 6%.

The RICS has also indicated that as property transactions begin to rise from their very low levels, the influx into the rental market has slowed as the market reaches equilibrium with supply able to match demand.

The Young Group, a leading Property Investment Group, carries out a quarterly survey of investor market sentiment. Their 2nd quarter report contains upbeat news. 52% of investors are considering purchasing additional residential property assets within London during the next 12 months, compared to 30% who are looking at opportunities in the UK outside of the capital.

Sentiment among Investors remained strong and that 99% of investors intend to hold their residential property investments for the next 12 months. 41% intend to hold their assets for at least 10 years and 12% of private residential property investors intend to retain their property investments for the next 20 years or more.

On average, residential property investors expect to hold their investment assets for the next 10 years.

What are the barriers to improvement in the rented property sector?

The oversupply of rented properties in certain areas will not abate for some considerable time, and this will continue to exert downward pressure on rentals achieved. This is particularly the case with two bedroomed flats in urban areas.
Even where more saleable houses are involved, the market is unlikely to see rises sufficient to tempt the reluctant, distressed or accidental Landlord to cash in on their investments. Some Landlords may well have favourable tracker or low fixed interest rate mortgage and are well placed to ride out the storm.

The shortage of mortgage finance will also be a barrier to Landlords. Mortgage approvals, for which part will be investors looking to add to their rental portfolios, were again up visibly but the shortage in funding is evident in the number of buy to let mortgages declining according to moneysupermarket .com from 4690 to 177 in the last 2 years. Of those mortgages that are available at the time of writing, the Nationwide has a buy to let mortgage at 3.69% but with conditions, and a whopping 3.5% arrangement fee.

Unemployment has not yet bottomed out, and there may be more people forced to sell their properties, further dampening the prospects for a rise in rental income.

TWIST, STICK OR BUST THEN?

It may be dangerous to give too broad a conclusion. Certain parts of the country will be faring better than others. Locally, here in Bristol and South Gloucestershire the outlook for rents are good. Local estate Agents and Letting Agents are reporting that properties coming on the market to rent are letting relatively quickly. Rents have held strong and there is no evidence of a decline in rents achieved.

As ever, events may still derail any nascent stability. Unemployment may lead to lower, reduced prices and plentiful tenants taking the opportunity to buy rather than rent. Mortgages are still are hard to come by.

The Rental Index from the property portal FindaProperty.com published last weekstates that the UK rental market is stabilising. Although the supply of rental properties doubled between May 2008 to May 2009, stock levels have now declined for two consecutive months. This may be an early indication that the chronic over supply might be at an end.

Rents fell sharply during the period by an average 5.5% or £48 per calendar month. Since then, their Rental Index has shown a small increase of £6 pcm.

The low level of first time buyer activity continues to contribute to demand in the private rented sector.

If you are one of the distressed, reluctant or accidental landlords, who wish to get out of the market, there may be better news than of late. The sentiment, that the bottom of the market is near has been reached means now could be a good opportunity. Although it is still obvious that, if you bought within the last 2-3 years, you will almost certainly be unable to realise as much or any profit from selling now.

For most landlords who are successfully renting (albeit at perhaps less than their last rental), provided their gearing is manageable, they will be well able to ride out the storm and await a more obvious recovery.

For the continuing landlord investors with cash in hand or large deposits, there are bargains to be had, although they may have already missed the best bargains.

For traditional landlords the outlook is still positive and unlikely to force or change their outlook.

It may not be radical to suggest, but the best advice may be to “stick”.

****

About the Author: Paul Hajek. Is a Solicitor and Principal of Clutton Cox, Solicitors, Chipping Sodbury and a Director of ActionMove, a leading Home Information Pack (HIP) Provider. Paul Hajek has over 25 years experience of the Conveyancing and Estate Agency market, and blogs regularly on his website. He can be contacted on 0844 372 3011; Paul at cluttoncox.co.uk or via his website www.cluttoncox.co.uk