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Buy-to-let properties coming back to haunt owners

Auctioneering houses are reporting a worrying trend: apart from own occupiers in cheap housing that are forced to sell their houses to pay for their debts, more and more real estate investors are forced to have their buy-to-let properties repossessed. An auctioneer at Allsop reported that the rate of repossessions concerning buy-to-let properties make up half of the total repossessions, and the Department for Constitutional Affairs has counted a 15% rise in mortgage repossessions compared to the same period last year. Even though the buy-to-let market is a relatively small share of the property market with only 8%, these new figures are a warning sign for anyone still hoping to make some easy money with property.

So what are all these buy-to-let owners doing wrong? It is supposed to be deceptively easy: Have some spare cash, buy a nice piece of property and collect a high monthly rent, and within 10 to 15 years, the property is all yours. This is the simple arithmetic that many real estate mogul hopefuls were following, until reality came to haunt their property dreams. Many inexperienced buyers simply overestimate the value of their pretty new properties and underestimate the rental properties available by other buyers. The buyers of new property developments are especially vulnerable to this misconception, and in order to keep their risks down some mortgage providers have already started to deny mortgages to buy-to-let buyers of newly builts, or at least to ask a deposit up to 10% higher than usual.

And then of course, there are those buyers that just don?t have enough experience to correctly estimate the running costs of a buy-to-let property. This includes insurance, maintenance, management fees or periods between tenants when no rent can be gathered. To these buyers, mortgage brokers have a piece of useful advice: when calculating the yearly income you are expecting from your property, simply deduct 1% for error. And you might safe yourself a whole lot of trouble further down the line.