New danger for buy-to-let tenants as more landlords fall behind on mortgage payments

Published 26th Nov 2008

Many landlords are having a tough time, with the number falling behind with the mortgages up by 50 per cent in the past three months.

So while renting is becoming an increasingly attractive option for those who cannot afford to buy a home of their own, tenants need to be careful when moving into a property. Renters need to make sure they know what they are signing up for.

Chris and Siobhan Taylor rented a five-bedroom house in Loughton, Essex, in August. They paid £48,000 upfront for the year after being offered a £6,000 discount. Now settled in, they have discovered that their landlord is already tens of thousands of pounds behind on his mortgage repayments.

'We are feeling very vulnerable. We had no idea when we rented the property that this could happen. We just assumed that everything was OK. We face losing all our money and our deposit, or having to go to court, should the lender want to repossess during our one-year tenancy,' says Siobhan, 39.

The Taylors have fallen into a gaping hole in the legislation covering tenants. As their rent is more than £25,000 a year, they had to sign a standard tenancy contract, not an assured shorthold tenancy contract, which would have given them a raft of protection.

It also means their initial £7,850 deposit was given directly to the landlord rather than being held by a third party under the Tenancy Deposit Protection Scheme.
To let

Those sharing a house or flat where their combined rent is more than £2,083 a month, if the lease is in joint names, are also not covered.

Ian Potter, head of operations at the Association of Residential Lettings Agents (ARLA), says: 'The whole subject of the private rented sector is under review in a Housing Green Paper. It is acknowledged that the current system is not satisfactory.'

One of the major problems for tenants is that letting agents are unregulated. Those that are members of ARLA have to follow its code of conduct, but this does not require them to get confirmation that a landlord has told his mortgage provider that the property is being let, just that their lender should be informed.

The result is that you cannot sue a letting agent for negligence.

Sue Anderson, at the Council of Mortgage Lenders, says: 'A bank or building society will eventually send a letter to "the occupier" of a property. We advise tenants to open any letter addressed this way. The letter will give them a minimum of 14 days' notice of any court hearing to repossess the house.

'If the court does repossess, they will have a further minimum 28 days before the lender takes possession. As soon as a tenant realises there is a problem, they should get advice from Citizens' Advice or a solicitor, and make contact with their landlord's lender.'

Once a lender knows a property is to be rented out, they will usually insist that the loan is converted to a buy-to-let mortgage.

Mario Economides, at solicitors Lorrells Georgiou Nicholas LLP, says: 'If you have paid all the rent up front, then if the house is repossessed you need to put in a claim against the landlord for the outstanding rent and deposit. This would be paid out of any surplus once the property is sold.

'Tenants falling outside the assured shorthold tenancy rules should insist that the landlord has his lender's consent and that any deposit is paid into an escrow account held by a solicitor or the letting agent.

'I would not advise clients to pay rent up front as a year is a long time and you don't know what will happen.'

Source: ' Daily Mail '

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