Page last updated at 16:01 GMT, Sunday, 16 November 2008

Surviving the property turmoil

Christian Hills
Producer, How to Survive the Property Crisis, BBC One

London estate agents' signs
The economic downturn is hitting all sectors of the housing market
As the turmoil in Britain's housing market continues everyone's feeling the pressure - from first-time buyers struggling to get on the property ladder to builders desperate to sell new homes.

One area thought to be bucking the trend was Britain's booming rental market.

With would-be home buyers unable to purchase, more and more were opting to rent instead, fuelling demand and forcing up prices for the right kind of property.

However, the downturn is taking its toll on certain areas of the business and it is affecting both landlord and tenants alike.

Buy-to-Debt

"We decided to go into buy-to-let because we thought it was just the right thing to do," says Robert Hole, a retired banker from Chiswick, west London.

"It looked like a good way in which to invest your savings and get a return. Think of it, you've got a mortgage someone else pays for. What could be better?"

Letting agent Yvonne Marsden offers buy-to-let advice

Enticed by a property investment club's tales of quick profits, Robert and his wife Maria splashed over 380,000 on three new-build apartments in the north of England.

Like thousands of other amateur landlords who've bought in the last three years, Robert and Maria thought they couldn't lose.

Unfortunately they were wrong. For Robert and Maria, buy-to-let turned into buy-to-debt.

Due to massive oversupply in new-build apartments, especially in cities like Leeds, Liverpool and Manchester, rental incomes have dropped way below what Robert and Maria were told they could command.

At first the rental income was just covering the low-fixed rate mortgage repayments and the couple expected that increasing property prices would eventually bring a return.

That was until the credit crunch struck and their introductory fixed-rate deal vanished.

Unable to find a cheaper mortgage the couple now face a monthly shortfall of around 500 and falling prices mean it is impossible for them to sell up without losing tens of thousands of pounds.

"It's a perpetual drain and obviously we should never have been in this. It's a huge mistake," said Robert.

"We'll just try to hang on at the moment," adds Maria. "Hopefully something will change."

Market bubble

TIPS FOR BUY-TO-LET LANDLORDS
Research - thoroughly research your area to make sure you're not pricing yourself out of the market
Repayments - if you're struggling talk to your lender to try and sort out a new mortgage plan
Reach Out - market your property before tenants leave to avoid costly empty periods
Rainy Day - put money aside each month to help take the sting out of unexpected costs
Resolve - property is a long term investment, keep your head so you'll still be in business when the market picks up

It's estimated that about 200,000 landlords will find themselves in a similar position to Robert and Maria due to the downturn, with many struggling to keep afloat as the economic waters get even choppier.

Repossessions of buy-to-let properties have soared by 52% in the last 12 months.

Painful statistics like this have come as no surprise to David Whittaker, managing director of a brokerage specialising in buy-to-let investments.

"Landlords that have been caught out have bought multiple properties in the one post-code because it's convenient for management," believes Mr Whittaker.

"But because 40% of these apartment blocks are owned by buy-to-let landlords they create a bubble in the market and there isn't sufficient demand to go round."

But is there any light at the end of the tunnel for these part-time landlords?

"What's potentially going to bail them out are the first-time buyers who can't buy themselves, so are forcing rental demand up," said Mr Whittaker.

"With regards those who've come to the end of a fixed-rate deal, the fact that the base rate's come down could be the saviour, but it still might not plug the whole gap for them."

Sale-and-Rent-Back

To-let signs in Birmingham
Some landlords have bought properties in one post-code area

For some desperate homeowners struggling in the downturn, a controversial section of the buy-to-let industry appears to be the only solution to their financial problems.

Sale-and-rent-back companies offer to buy your home and then lease it back to you, allowing you to clear your debts and remain in the property as a tenant.

It sounds perfect, but it's not always painless.

When pensioner Shirley Hale, from Hyde in Greater Manchester, fell behind with loan repayments secured against her house, she feared the worse.

"I was petrified I was going to lose my home, that I was going to lose everything," said Shirley.

"I needed to get out of this mess and then I saw this ad in the paper."

It seemed like the lifeline that Shirley had been searching for. Within days of calling, the sale-and-rent-back company's director came to value her home.

The good news was that they would buy Shirley's home. The bad news, it was for a price around 25,000 less than the market value.

Despite the considerably lower price, a verbal promise that Shirley could stay in her home indefinitely made her mind up.

"I thought this is it, this is me out of trouble this is me settled all my debts settled and I've kept the home."

Unfortunately Shirley's trouble had just begun.

The company had purchased her house with a mortgage, but within six months it emerged they'd stopped paying it. Shirley only discovered this when mail, intended for her new landlords, was delivered to her home.

One letter stated that repossession was imminent and fearing she would be evicted, Shirley moved out.

'Regulation needed'

man walks past estate agent's window
Repossessions of buy-to-let properties have risen 52% in 12 months

Sadly, organisations like Shelter, the housing and homeless charity, are seeing more and more cases like Shirley's every month.

"Some of the schemes are reasonable and responsible but far too many of them are preying on the desperate, on the vulnerable and taking advantage of their desperation and the stress to rip them off," believes Shelter chief executive, Adam Sampson.

According to the Office of Fair Trading, it is estimated that more than 1000 companies are operating sale-and-rent-back schemes yet it is a business that's totally unregulated.

"What we need to see now is proper regulation on the part of the government," added Mr Sampson.

"We're seeing thousands of people coming to us complaining to us about these schemes, and we need government not simply to stand by and watch thousands of people being ripped off but to do something to stop it."

For Shirley, a clampdown on the industry's unscrupulous lenders won't change her situation. She's still lost the home she loved.

"It's the end of your little world because there's no one to turn to. You don't want to tell anybody because you feel such a fool."

"How could I be conned like this and tricked into giving up my home?" she said.


The series How to Survive the Property Crisis will be broadcast from Monday 17 to Friday 21 November at 0915 GMT on BBC One. Declan Curry, Kristian Digby and Dominic Littlewood give advice and information to homeowners and house buyers.



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