Found this article in the Guardian

By Sinead Cruise

LONDON, June 12 (Reuters) -Some of Britain's biggest property vendors are preparing for a surge in instructions to sell repossessed houses and apartments from failed residential investors this autumn as banks get tough on troubled borrowers.

Several of the UK's largest mortgage lenders are repossessing more owner-occupied homes since their taxpayer bailouts but higher-risk buy-to-lets are also in their sights.

Property auctioneers regularly appointed by bank receivers to find best market value for distressed real estate said sales enquiries were rising and a recent spurt of foreclosed residential buy-to-let disposals gave a taste of things to come.

"We're talking to banks and building societies on a daily basis and I can tell you we are expecting a higher volume (of repossessions) towards the end of the year," said Gary Murphy, auctioneer at Britain's biggest property auction house Allsop.

Buy-to-let residential property investment became a national phenomenon in the UK in the late 1990s.

Figures from the Council of Mortgage Lenders show the number of UK homes repossessed rose to 12,800 in the first quarter, while Bank of England estimates show more than one in 10 UK households were in negative equity.

About 200 of the 430 lots in Allsop's June sale were classed as "distressed stock", with a large proportion coming to auction as a result of failed buy-to-let investments.

"I suspect there is now a general willingness to get on with realising the debt in situations where it has become inevitable there will not be recovery," Murphy said, explaining the rise.

 

PHENOMENON

The buy-to-let boom took off when affluent Britons exploited an abundance of cheap mortgages to buy second homes to generate further income and bolster personal retirement plans.

A period of skyrocketing house prices and a lack of confidence in stock markets following the Dot.Com bust attracted more speculative landlords to the sector, fostering market conditions that helped to create Britain's housing bubble.

Buy-to-let mortgages were relatively easy to repay while rents were rising and lending was freely available, but banks have been cutting back on these higher risk home loans since the credit crunch, leading to an acute thirst for refinancing.

Nick Hopkinson, a director of residential property recovery specialist Property Portfolio Rescue said lenders were increasingly withdrawing mortgage offers at the eleventh hour, leaving some landlords with little option but to hand back keys.

"Most banks are still in real financial trouble behind the scenes and are battling to build their reserves and reduce their bad debts as the recession worsens," said Hopkinson.

"The UK is effectively seeing mortgage rationing by banks as they cherry pick only the buyers with perfect credit ratings and huge deposits," he said.

 

BUYERS EYE SELL-OFF

Not every struggling buy-to-let investor is selling up against their will. The residential lettings market has reached saturation point in some areas, compressing rents and making residential landlording a much less lucrative business.

Research from advice website Unbiased.co.uk shows 28 percent of Britons believe buy-to-let property investments will make a loss in the current climate, while a further quarter think those invested in the buy-to-let market are only likely to break even.

Murphy said some unwitting buyers drawn to residential property investment in recent years were dazzled by the attractive yields on offer but failed to do their sums.

"So many basic errors of investing in the residential market were concealed by rising property values. People forgot ... about their outgoings, forgot about how they would cover the mortgage payments if they didn't have a tenant," he said.

Enticing yields are up for grabs again today but Murphy said many who bought close to the market peak were sidelined now.

At Allsop's last sale, the average gross yield for properties let on regulated tenancies was 3.46 percent, compared with 9.02 percent for homes let on Assured Shorthold Tenancies.

"There has been a real shift from the amateur to the professional investor. The people who didn't get a look in the last time, who decided prices were too steamy, those are the people who are at the fore. They are now buying a much better return than cash on deposit," he said. (Editing by Andrew Macdonald) (See www.reutersrealestate.com for the global service for real estate professionals from Reuters)