Is buy-to-let still a good investment for landlords, as repossessions surge?

Alice Cockerell thought she had found her ideal tenant. After posting an advert for her West London apartment online, she was approached by a man with what appeared to be impeccable references, including one from a wealthy aristocrat.

When she met him in person, Alice was struck by what she perceived as his ‘great honesty’.

Little did the 35-year-old writer know she had actually just given her keys to a tenant from hell who refused to pay a penny of rent beyond the first month — costing her £31,000 in lost income.

Lost income: Alice Cockerell has been left £31,000 out of pocket after a nightmare tenant refused to pay rent for well over a year

Lost income: Alice Cockerell has been left £31,000 out of pocket after a nightmare tenant refused to pay rent for well over a year

Some 456 days later, she has only just managed to evict him — with the help of court-ordered bailiffs.

‘It took six months of unpaid rent for the penny to drop,’ says Alice. I stopped hopefully checking my online banking every few hours, but he refused to leave my flat. That was the worst moment.’

Cases like Alice’s are being repeated across the country.

Landlord possession claims surged 160 per cent between April and June 2022, compared to the same period last year.

Meanwhile, the number of actual repossessions granted rose 210 per cent — from 1,582 to 4,900, according to figures from the Ministry of Justice (MoJ).

The stark rise is due to evictions being banned between August 29, 2020, and May 31, 2021, to protect tenants during the coronavirus pandemic.

But as a result, experts say the system is now at breaking point as landlords face huge backlogs and delays. They warn the courts could soon be flooded with similar cases as the cost of living crisis pushes more renters into arrears.

Figures from the Office for National Statistics this week reveal that nearly 39 per cent of tenants reported difficulty affording their rent.

How to dodge a tennant from hell 

Vetting tenants is key and can save you from a nasty fallout later down the line.

  • The most important check to run before the contract is signed is that the tenant or lodger can legally rent your property. Keep records of the documents you’ve checked, such as copies of passports, visas or settled status confirmations, as proof you did it.
  • You do not legally need to do referencing checks but it is vital for making sure that you are not putting your trust in the wrong tenant.
  • A pre-screening phone call can help see if they are a good fit, including if they smoke or have pets.
  • Find out about their ability to pay rent. Ask for employment status and details about their income, which they can prove with wage slips or bank statements.
  • Ask for a professional reference for evidence of their employment history. You can also request a credit check on them to see their track record for paying off debts.
  • Check out their standing with their current landlord by getting a reference from the letting agent.
  • For students or anyone who has not rented before, make sure to ask for a guarantor who agrees to pay the rent in the event your tenant isn’t able to, or damage is done.

Paul Shamplina, founder of advisory service Landlord Action, says: ‘In 2023, we are going to see more repossession hearings than before the pandemic.

‘There are going to be tenants falling into arrears and landlords struggling to afford their own mortgages. It’s going to be a really tough year.’

It might be difficult for some tenants to sympathise. Rents are rocketing way above the rate of inflation, with 45 per cent of private renters seeing theirs increase in the past year, says campaigning body Generation Rent.

For years, landlords have been vilified. But Alice’s story serves as a stark warning of the pitfalls in the increasingly precarious buy-to-let sector.

It took her six months between being granted an Order of Possession and her tenant actually vacating the property. In that time, she didn’t receive a penny of rent.

This is consistent across the industry, as MoJ figures show the median time a landlord repossession claim takes is 23.4 weeks.

And several weeks later, Alice is still uncovering damage done to her beloved flat.

At present, when a landlord wants to evict a tenant they have two options: a Section 8 or a Section 21 notice.

A Section 8 — such as the one Alice took out — is applied when someone has rent arrears, has damaged the property or has caused a nuisance to the neighbours. 

Meanwhile a Section 21 eviction is a ‘no-fault’ process which allows a landlord to reclaim their property even if they do not have a reason for eviction.

But earlier this year the Government controversially agreed to scrap Section 21 evictions altogether. It means getting rid of a tenant will be harder than ever before and could leave landlords out of pocket when they are facing their own cost of living pressures. 

These types of evictions have been banned in Scotland since December 2017 — though they remain a politically divisive topic north of the border. Often, fed-up property owners issue Section 21 notices to badly behaved tenants as they are a quicker route than Section 8s, because they require less evidence and the landlord accepts the rent arrears as a loss.

 The Government’s proposals risk making it harder to tackle anti-social behaviour

Ben Beadle, of the National Residential Landlords Association, says: ‘The Government’s proposals risk making it harder to tackle anti-social behaviour and risk serious damage to the student housing market.

‘Alongside this is an urgent need to speed up the court processes.

‘It takes around half a year between a landlord applying to repossess a property and it actually happening.

‘This is far too long when, during this time, a tenant might not be paying their rent or be engaging in anti-social behaviour.’

Jasvinder Singh knows this pain all too well.T he 41-year-old was forced to watch on in horror as his tenant destroyed his beloved three-bedroom flat in Ilford, East London — all while falling into more than £6,000 arrears.

It took him more than a year — and three bailiffs — to evict her. While he applied for a Section 8 notice, he eventually got her out on a Section 21 as it was quicker.

Warning: Experts say the system is now at breaking point as landlords face huge backlogs and delays

Warning: Experts say the system is now at breaking point as landlords face huge backlogs and delays

Jasvinder says: ‘It was a nightmare. It affected everything, from my family to my lifestyle.

‘I had my own mortgage to pay. It was my 20th wedding anniversary last year. My wife and I were supposed to be going on holiday but we had to cancel that.’

The situation is compounded by the fact the buy-to-let sector is being squeezed to breaking point. Soaring buy-to-let mortgage rates — which are now at their highest since the 2008 financial crisis — and stricter lending criteria mean it is harder than ever to make money on a rental property.

This is particularly damaging to landlords as many are geared up to low-rate environments. 

For example, low rates made it more sensible to invest in three properties with mortgages rather than one with cash. 

But as landlords come to refinance, many may find they no longer meet their lenders’ stress tests — or struggle to find a good deal.

Spooked banks pulled hundreds of deals in the wake of former Chancellor Kwasi Kwarteng’s disastrous mini-Budget last month. Many have cautiously started to return to the market — but at inflated rates.

Legal fights: The number of repossessions granted between April and June 2022 rose 210% - from 1,582 to 4,900, according to figures from the Ministry of Justice

Legal fights: The number of repossessions granted between April and June 2022 rose 210% – from 1,582 to 4,900, according to figures from the Ministry of Justice

And lending criteria has tightened as banks prepare for future hikes to the Bank of England’s base rate. Earlier this month, The Mortgage Works began applying a minimum stress rate of 8.49 per cent on all new buy-to-let applications, up from 5 per cent previously.

Yesterday the lender pulled back on the move, saying it would offer a ‘tailored approach’ to stress rates.

At the same time, rents — which have been sky-high for much of the past year — are starting to fall too. Research by Hamptons shows that rent growth in England and Wales slowed to 6.9 per cent, down from a record high of 11.5 per cent in May.

Meanwhile, the average rent on a property in the South-East fell by 1.7 per cent annually in September.

Landlords are also at the mercy of increasingly strict Government red tape. From 2025, all newly rented properties are required to have an energy-efficient EPC rating of C or above.

Existing tenancies will have until 2028 to comply. Landlords whose properties fall short of this rating could be fined up to £30,000.

It is little wonder, then, that they are exiting the sector in their droves. Chris Sykes, a mortgage broker with Private Finance, says: ‘This is a worrying time for many landlords and yet another thing they are having to endure. The buy-to-let market has changed very significantly over the past five years.’

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