Much of the current news and debate around the buy-to-let market is focused on its ultra-competitiveness, the increase in the number of portfolio landlords and the use of limited company purchasing vehicles. Plus, more recently, the potential implications for the private rented sector regarding some of the more radical policy changes promoted during the recent general election campaigns.

Amongst all the industry commentary, particularly that in relation to the level of such political uncertainties and policy ambitions, one thing remains clear and that is the buy-to-let sector will remain a key component of housing supply.

Understandably, whilst there is a tendency to focus on the positives at the point of loan origination, it is inevitable that, at some point, lenders will be faced with delinquent mortgage accounts incapable of being rehabilitated. At this point, there is a decision to be made; actually, the decision will need to have been made some time in advance of the account moving into delinquency.

Insolvency specialism

It is in such circumstances that a specialist fixed charge receiver can undoubtedly assist. As a firm of chartered surveyors with a dedicated insolvency specialism, we are very active in the buy-to-let market and have worked with many lenders in this arena for over 25 years.

Fixed charge receivership is often an attractive and cost-effective option to a mortgagee looking to avoid prohibitively high costs of litigation and possession. Additionally, appointing a receiver provides protection to a mortgagee from the attendant liabilities of dealing directly with an occupied property. Additional legislation has been introduced with alacrity over the last decade and it will come as a surprise to many to learn that landlords now have to comply with over 150 pieces of law – a 30% increase since 2010.

Importantly, the appointment of a receiver also creates a legal buffer and keeps the mortgagee one step removed from direct involvement in dealing with a property and the substantial inherent associated risks. A receiver has the formal status required to assess and work through the most appropriate strategy relevant to the circumstances.

Receivership should certainly not be about a ‘fire sale’ of the mortgaged security looking at an unrealistically rapid exit; it is much more about assessing true market value and putting in place the relevant actions to achieve that aim.

Buy-to-let arrears

Recovery options are likely to have an increasing relevance in the buy-to-let arena as the latest data from UK Finance indicates a potential trend, particularly in terms of greater arrears levels on individual buy-to-let mortgage accounts and possessions.

In November last year, the trade body released its quarterly arrears and possession statistics for buy-to-let mortgages. Whilst there was a drop of 5% year-on-year in buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance, when it came to arrears of between 7.5-10%, these were up by 9%, and arrears of over 10% were only very slightly down by 1%. It is at these higher arrears percentages that cases often make their way towards delinquency, and it’s notable that lenders are currently moving to possession in greater numbers – in quarter three last year 800 buy-to-let mortgaged properties were taken into possession, a huge jump of 40% on the same quarter in 2018.

Maturing loans

Maturing loan positions are also relevant to mention as these can create their own unique problems for lenders in circumstances where borrowers don’t have the ability to repay the outstanding capital. This can be especially problematical with interest-only loans for obvious reasons. While there is currently a fertile refinancing market, this option isn’t available to everyone for all manner of reasons, which might include the age of the applicant, failure to meet the more stringent affordability criteria for buy-to-let lending or the absence of an acceptable financial profile. In such cases, the problem will often move back to the current lender.

This can be a trying situation and lenders have often adopted a policy of mortgage forbearance as a default position. Nevertheless, this is rarely a sustainable stance to maintain and a longer-term solution will need to be identified. While some lenders might have historically treated these cases as a mortgagee repossession case, with a buy-to-let loan, this may not be the most appropriate decision. In our experience, receivership works especially well in such circumstances and we have seen a significant upturn in matured loan referrals over the last two years in particular.

Although a widely-used and effective recovery remedy, it is apparent that, in some quarters, receivership has a mystique and perhaps a connotation of quirkiness. In most cases, this is almost inevitably as a result of unfamiliarity with the regime where the established – but often less effective and more expensive higher-risk options such as taking direct proceedings – might seem like the only available choice.