Owner occupiers more at risk of repossession than buy-to-let investors

Discussing The Outlook For Repossessions David Stubbs, Senior Economist At The RICS Said: Owner occupiers more at risk of repossession than buy-to-let investors.

Repossessions have been rising since the second half of 2004. We believe the increases will continue in 2007 with 19,000 homes being repossessed during the year. While this would be three times the amount seen in 2004, it is still well below the 75,500 repossessions in 1991.

However, the composition of these repossessions is also of interest. Some commentators have suggested that buy-to-let investors will have a greater propensity to default on their mortgage payments, and move rapidly towards repossession.

The RICS takes the opposite view. We believe that those most likely to have their property repossessed are those who have bought their first property in the last few years, and stretched themselves very thinly in order to do so. Buy-to-let investors by comparison seem well placed to avoid getting behind on their payments.

The differences between the two categories of property owners are clearly apparent when looking at the mortgage arrears data. A higher percentage of owner occupiers are slipping behind on their mortgage payments than buy-to-let investors. In the twelve months until June 2006, 0.96% of all mortgages were in arrears. This is significantly higher than the 0.69% of buy-to-let mortgages that were in arrears during the same period.

The reasons behind this disparity are clear. Owner occupiers who have stretched themselves to the limit to get onto the housing ladder are more at risk from rising interest rates. The average age of a first time buyer is under 30, whereas buy-to-let investors tend to be older with over half of investors aged over 45, and only 11% under 35. Their more advanced years will mean that on the whole, investors have larger disposable incomes than recent first-time buyers. This will allow them to easily ride out a period of higher interest rates even if they push investors’ mortgage payments above the rent generated by the property for a time. Over 56% of investors plan to keep their properties for more than 10 years and the bulk of the investor community turned to buy-to-let investing to generate long term capital growth, rather than a short term income from rent. Indeed, the confidence in their own financial situation is demonstrated by the 82% of investors who say that they would not sell their investment properties even if house prices were to fall.

In addition, landlords should have no difficulty finding tenants at attractive rental rates in coming quarters. Rental demand remains strong as the economy continues to grow, the numbers in employment continue to rise, and high house prices force would-be buyers to rent. Indeed, the latest data from the RICS Lettings Survey shows that rents are rising at close to the fastest pace in five years, and tenant demand remains buoyant.