The Government now has a Â£200m package of measures designed to prevent some of the most vulnerable families losing their homes due to repossession. The government scheme subject to a range of eligibility criteria is aimed at households who are eligible for homelessness assistance. In the scheme housing association will be able to buy part or all of the struggling homeowners home. The owners will then be able to stay on as a tenant at a reduced rent.
Does this sound familiar to you? I think the government has decided to offer its own Sell and Rent Back scheme to struggling homeowners. Using tax payers money of course!
To what extent will the government be able to help? well lets look at the amount involved Â£200m. With the 200m they reckon they will be able to help 6,000 homes avoid repossessions across England. his may seem like a large number, but compared to the ammount of yearly repossessions, this figure is but a drop in the ocean. In 2007, 27,000 homes were repossessed by their lenders as the homeoweners could not afford to pay their mortgages. This figure rose to 45,000 in 2008. This year the number of repossession will be set to rise 75,000 (CML estimate) as the recession takes its toll. 6,000 homes saved will only therefore be 8% of homeowners that will be able to benefit from the new scheme. What about all the other 92% of homeowners who face repossession?
Will this be opportunity for the investor with private sale and rent back schemes? I think so, but any investor getting involved in rental properties will have to be cash rich as most buy to let mortgages now require at least 25% deposit.
I’ve been contacted by ITN News regarding current repossessions rates and a survey that they are currently doing for a news item. I’ve sent a reply back to them with as much information that I can give, I hope it will be helpful to them.
My name is G… B… and I work on the consumer desk for ITV news. We are conducting a survey to do a story on repossessions – here are the details. I hope you can help – we wanted a new angle and who better than the people who help others in this situation. Here are the details…
We are putting together a survey on repossessions by calling the advice websites and centres and asking these generic questions. We feel it important to show that this is a current situation affecting many peoples lives. Can you let me know if you are able to take part. We will be pulling together all the data hopefully exclusively for the Ten O’clock news. Here are the key generic questions.
1.) How many people have contacted you concerned about being repossessed over the last year?
2.) How many of your clients have actually been repossessed in the last twelve months?
3.) What is the minimum amount of months in which a consumer has been taken to court?
4.) What type of mortgage is getting the majority of your clients into financial difficulty?
5.) What is the most common age range of people that contact you about repossession concerns?
6.) In a typical arrears case, how many extra charges are added by the lender when going through the process? For example some lenders have monthly arrears charges and litigation costs.
Do you have any case studies of people that we could film with?
Please contact me if you have any further questions. Let me know if there are other questions that you feel beneficial to add to the survey.
I’ll contact some of my clients soon and see if they want to appear on the news. I can just imagine Trevor McDonald reading the news reporting about increased repossessions with all the interest rate rises, followed by an interview with one of my tenants about their whole experience. That will be strange to watch especially if they mention me or my company!
A Property buying company trading as Repossession Stopped and Retail and Domestic Properties have this April gone into liquidation. They owed Â£19million to mortgage lenders on 230 properties.
They had been operating the sell and rent back system long before other property investors got in to the game. I remember seeing their advertisments in the local papers going back a good few years. You may have seen the red postage stamp sized ad with the hand to stop repossessions.
I always thought that they would have been really sucessfull in what they do as they seem to appear in most local papers around the midlands. On occasions we did go head to head with some of my clients telling me they had also called repossession stopped. Sometimes we beat them and did deals with clients, othertimes they beat us but I guess that is just business. I think they must have bought some properties for very low prices whilst they were the only company doing the sell to rent back scheme.
They must have run in to some pretty serious cash flow problems to go into liquidation. Some of their tenants were evicted from their homes even though they had always paid rent on time. Richard Dewsbury states on the BBC website:
he’s devastated this situation has arisen and it was never the company’s intention to cause distress to tenants. He says although the Wilkinsons paid their rent on time, lots of other tenants didn’t, causing the business to struggle. He says there are still investors who may purchase their properties, reducing the likelihood of evictions.
He stated that lots of tenants were not paying their rent, which is no surprise to me. They were facing repossession for whatever reason, usually because they were very bad at handling their own finances. So now they’ve been helped out one last time by an investor buying their property and renting it back to them. More often then not they get back into old habits, falling behind with their payments on rent rather than mortgage.
Â£19 million Debt
What are the monthly payments on 230 properties and 19 million worth of debt?
If average interest rate is 5% assuming they bought the bulk of the properties when the rates were lower and fixed the rates.
That would make the annual payments a mere Â£950’000.
The monthly payments would only be a whopping Â£79’167.
The monthly rental income should be around Â£102’000 assuming Â£100 average coverage on each property.
If a third of the tennants didn’t pay properly the rent recieved per month would be Â£68’000.
Leaving a monthly deficit of Â£11’000. or annually Â£132’000.
It’s no wonder they went into liquidation..
70% Below Market Value
If like most investors of this type I’m guessing they would have bought most of their properties at 70% of the true market value. Homes they bought a few years ago would have been purchased for even less. They then remortgage them to 85% of the market value pulling out the equity to reinvest (or spend).
If the Â£19 million owed was only 85% of the value of their potfolio.
They must have owned over Â£22.3 million worth of property.
Purchasing them all for around Â£15.6 million.
Releasing around Â£3.4 million of equity in the process.
Part of the released funds will have been used to pay the monthly deficit and part will have been spent on a lavish lifestyle?
Thats must have been some lifestyle!
Buy and Rent Back system
If Repossession Stopped were using the buy and rent back system and they failed, should I be more careful? I think so, I think it may be wiser to do more traditional buy to lets. Buy to lets with more ordinary tenants are sought rather than those with financial problems.
I’ll also I’ll be buying more properties to do up and sell on. Which means I’ll need to find those cheap builders again.