During the 1980s some press coverage about this issue started to filter out. The lettings business was booming because no one could sell their house, and negative equity (where your house is worth less than you borrowed to pay for it) hit hundreds of thousands of homeowners. Although the issue has gone off the media boil now, the buy to let phenomenon means that landlord borrowing is now through the roof. The fact that your landlord might well have borrowed large sums of money to buy the house you’re living in can have some interesting effects on you.

Looking For Trouble

Expect a return to these awkward times if the current boom ends. It still haunts the industry – not all rental units prove viable in lean times – meaning what the landlord can get in rent doesn’t cover their costs and that’s when the trouble starts. It’s an awful situation to find yourself in. You’ve dutifully paid the rent, but the landlord has spent it rather than paying their lender, and lenders can move with surprising speed to get vacant possession (meaning tenants must go). Again, due legal process is always required.

Most rented property is now bought with borrowed money. Special deals for investment in rented property have emerged and new landlords are entering the housing supply market. This is absolutely great, and is where most new rentals have come from.

Of course, this doesn’t happen too often, but if it affects you, the fact that you are in a minority doesn’t make you feel one jot better. To a certain extent this is a risk you take, however being completely unaware that it exists doesn’t seem completely sensible.

Actually almost all normal mortgages have a clause in them, which prohibits the borrower subletting without authority from the lender (bank, building society). For the majority of tenants this causes absolutely no problem, as the owner uses the rent to pay the mortgage and no one is any the wiser. These days landlords gaily borrow money in the expectation of making huge gains, while tenants pay the monthly costs. But life has a funny way of not running to plan – especially where landlords overreach themselves, as can so often happen when prices are skyrocketing.

Life soon changes for tenants when the landlord is in personal financial difficulty and doesn’t keep making their monthly payments. As the number of repossessions (where the lender goes to court for a possession order) is again slowly creeping back up again, tenants can sometimes experience real problems that they are powerless to control.

In theory, anyone who has borrowings against a property they are letting out should serve a special notice, called Prior Notice, on their tenants advising them that the lender may want to sell it (usually to cover landlord default on mortgage payments), but in practice many don’t bother. Sometimes landlords are not being deliberately misleading. You actually have to know quite a bit about the lettings industry even to be aware of this rule, unless your lender insists on it. Like all lettings rules, it gets broken mainly because it’s nigh on impossible to enforce.

What You Can Do

Any tenant can find out if their landlord has a mortgage. If you want to find out, you can fill out a special form online from the HM Land Registry. Currently the charge is only £4 and the Land Registry are helpfully turning these around in about 48 hours. While it won’t tell you if your landlord is in financial difficulty, the name of the lender may well be on this document. At least with the name of the lender in your file, you have a chance of trying to sort this out if you become aware of problems. Start worrying when endless official looking mail addressed to your landlord regularly ends up failing through your door. If you use an agent, make sure that all this mail is promptly delivered to them – many agents don’t know what’s going on until it’s much too late either.

Unfortunately, often the first thing a tenant knows is that a possession order has been issued through the courts from the lender. Most tenants do find out at least at this stage, because there is often an agreement that the possession order be addressed to the landlord and all occupants, which does mean you are able to open it, even if you don’t like what you read.

Where this doesn’t happen, the court will usually try to make sure something similar does, as they are aware that tenants often live in properties that the landlord has claimed to live in as their own home, which are suddenly subject to possession orders in favour of the lender.

The alternative would be that the court process would be completed and the bailiffs possibly arrive before an unsuspecting tenant even realised what was happening.