With interest rates continuing to rise, the increase in mortgage rates is having an impact on both rented and owner occupied properties.

Repossessions are beginning to increase

Recent research by UK Finance showed that in the first three months of 2023, properties owned by landlords accounted for 35% of repossessions. Further analysis by The Telegraph showed that this was despite buy-to-let properties only accounting for 19% of mortgaged homes. Repossessions of rented properties have also increased by 33%. Whilst the overall number of repossessions is still relatively low (1,160 in the first 3 months of 2023) there is general concern that this number will continue to rise.

Why would a property be repossessed?

Failure to keep up with mortgage repayments can lead to a property being repossessed - whether this happens to be owner occupied or one that is rented out.

With mortgage rates at their highest levels for years, some landlords are facing a tripling or even quadrupling of their mortgage repayments.

In some instances, the amount a lender is prepared to offer in terms of mortgage size might even be lower than the current mortgage. In this situation, the owner (landlord) not only has to pay a much higher rate of interest, they would also have to pay back some of the mortgage when the time comes to re-mortgage.

What might a landlord do to avoid repossession?

Increasing the rent may be one way of avoiding a repossession, but even that might not be enough. We recently spoke to a landlord, who despite having increased the rent by 30% in 4 years, could not get a mortgage for the same amount as they did previously and therefore will face a £30,000 shortfall when they re-mortgage in a few months time. In this instance the only option might be to sell the property.

Will the landlord or letting agent tell me if the property is likely to be repossessed?

In short, there is no obligation for a landlord or letting agent to speak to you if the mortgage payments are in arrears. Indeed, the letting agent might not even know there is an issue.

What is the process of repossession?

The mortgage lender can start court proceedings if the landlord owes money on their mortgage.

The lender must also send a letter to the property which will be addressed to ‘the tenant or the occupier.’ If you get a letter addressed in this way, you should always open it and not assume it is junk mail. This letter will tell you where and when a court hearing will take place. You should look to take part in the repossession hearing and more information can be found here. If your landlord has a buy to let mortgage, or has an agreement with the mortgage company that states the mortgage company would take over the tenancy if the property was repossessed, you could remain in the property for the remainder of your tenancy.

What happens if the property is going to be repossessed?

You could delay the eviction process for up to 2 months, but if you are facing this situation it may be in your interests to seek help with the likes of Shelter and further information can be found here.

Can I be evicted if the property is repossessed?

If you have a ‘binding tenancy’ then your tenancy continues after the property is repossessed by the lender. A binding tenancy could apply if your landlord has a buy to let mortgage or your tenancy started before the mortgage was taken out. In this situation you become the mortgage lender’s tenant and they will need to take out separate action in order to end your tenancy.

Dialogue with your landlord or letting agent

No-one likes a shock, so it may be worth talking to your landlord or letting agent given the current market situation. Whilst there is no obligation for them to talk to you about the financial position of the property, there is no harm in asking the question.

Summary

Given the current market conditions there is a lot of uncertainty around the rental sector. Rents are at an all time high, landlords are selling properties in their droves and repossessions are slowly increasing, albeit from a low level. As a starting point you may wish to speak with your landlord or letting agent to get some initial clarity on your situation.

CreditLadder can help you improve your credit score

If you want to improve your credit position by reporting your rent payments, CreditLadder is the only way to improve your credit score and position across all four of the main Credit Reference Agencies in the UK, namely Experian, Equifax, TransUnion and Crediva. Building up a high credit score has a lot of benefits, including helping you access finance at better rates - this can also help save you money.

CreditLadder also runs a free mortgage application service in partnership with Tembo which will tell you how much you could borrow.

Remember the information provided in this article is for information purposes only and should not be considered as advice.