Lenders to let out repossessed properties

Published on Saturday 13 September 2008 13:59

LENDERS which repossess properties are considering letting them out to tenants until the market recovers, rather than selling them for a reduced price at auctions as they did in previous downturns.

With repossessions increasing as more borrowers struggle with rising mortgage costs, there is a danger that the housing market will be flooded with properties being sold on by lenders. This would have the knock-on effect of further depressing house prices across the UK.

In the first half of this year, lenders repossessed 18,900 properties, up from 12,800 for the same period in 2007. The Council of Mortgage Lenders (CML), a trade body, is forecasting a total of 45,000 repossessions this year.

Housing commentators say lenders are now looking at the possibility of becoming buy-to-let landlords for the first time. This would allow them to generate an income from the property, if rent levels are high enough, until they can sell it for a better price when the market recovers. It would also let some former homeowners remain in the property as tenants.

Marcus Dixon, research associate at Savills, said: "With rents forecast to outperform capital values, we're talking to banks which are thinking about renting repossessed properties rather than putting them into auction markets."

Rents are expected to rise by 6% this year, in contrast to house prices which have fallen by more than 10% over the past 12 months.

Because repossessions exacerbated the housing market downturn in the 1990s, Professor Gwilym Price of the University of Glasgow said the Government should intervene to encourage banks to become landlords.

While the CML does not monitor whether lenders are adopting this approach, it said it may happen in certain locations where there is a buoyant rental market or a glut of a of properties for sale. Lenders which offer buy-to-let mortgages and are forced to repossess landlords may be the most likely to decide not to sell and let tenants remain.

A CML spokesman said: "It really depends on the circumstances, but lenders may see renting as a better option than selling at reduced prices."

However, Robert Clifford, chief executive of Mortgageforce, a firm of advisers, said lenders which urgently need to bolster liquidity will not have the luxury of leaving mortgage debt outstanding while they wait for healthier selling conditions.