ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Being a buy to let landlord in the recession

Updated on August 16, 2014

The recession has been harsh on buy to let landlords who have mortgages. Rents have been falling as reposessions and unemployed homeowners trying to rent their homes out rather than sell in a falling market, increase the supply of rentals on offer.

In addition, most buy-to-let mortgages have a clause in them which allows the lender to demand a lump sum payment to eliminate any negative equity that might have arisen due to falling house prices. Because many buy to let landlords have interest-only mortgages, they are particularly vulnerable to negative equity caused by falling house prices.

To add to landlords' woes, because of the Credit Crunch, the number of lenders on the market who will consider a buy to let remortgage has reduced sharply as some cautious banks have pulled out of the sector altogether. The remaining lenders are applying stiff fees on any loans they agree.

What to do

The main priority for buy to let landlords is to be able to ride out the recession with their portfolio intact. Surviving the recession is all about managing risk. House prices will eventually rise again, though it may take a decade, and you can end up making a good profit, provided you have survived the recession without any of your homes being repossessed. Here is what to do:

1. First check to see if your buy-to-let home is in negative equity. The easiest way to do this is to get an estate agent to value the property for you and you can then compare the valuation to the amount of the mortgage you have outstanding. You can also use the Financial Times mortgage equity calculator to check the equity in your properties. If your mortgage is greater than the value of the house you are in negative equity.

2. Many buy-to-let mortgages have a clause within that allows the lender to demand a lump sum if the mortgage is greater than the value of the house. If you are in a negative equity situation, don't wait for your lender to contact you to demand a lump sum payment. Start overpaying the mortgage if the terms and conditions of your loan allow it. It's easier to get your loan down by making small regular monthly payments than to have to find a lump sum in a hurry when your lender demands it. If you are lucky enough to be on a variable rate mortgage, your interest payments will have come down sharply, which means your profit (rental income less interest payments) will have gone up. Use some of this profit to overpay the mortgage so that you are never in a negative equity situation even as house prices continue to fall. Keep some of the money aside to build up a deposit so that you have firepower to hand should you wish to take advantage of falling house prices to expand your portfolio.

3. If you are currently on a fixed rate deal, it's probably best to stick to it and switch to the lender's standard variable rate when the deal expires, rather than trying to remortgage, as the fees on buy-to-let remortgages are exorbitant. If your contract allows you to overpay without penalty, do so to reduce your risks.

4. Be careful of voids. The main reason buy to let landlords get into trouble is because they have voids. Try to ensure your property is let by cutting the rent rather than letting the property remain empty. It is better to receive some rental money than nothing at all. Even if you are in a void period, don't be tempted to save money by letting your buy to let insurance lapse. You will need it when the property is let again.

5. Finally recessions are periods of immense opportunity for those landlords who have managed their risks well, as it is a buyers market. This is exactly the time to snap up good properties at competitive prices in good locations. However, because it is hard to get a buy to let mortgage in the current climate, the only landlords who can take advantage are cash buyers. Therefore use the profits delivered from low interest rates to build up a lump sum that you can use to buy property at knockdown rates at auctions.

Most housing recessions last at least 10 years, and are followed by a huge boom lasting another decade. Therefore the opportunity to expand your property portfolio at cheap prices may not present itself again for at least two decades.

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)