Repossessing is the action of taking back a property by a lender or seller from the borrower or buyer, usually due to default on mortgage payments, or facing bankruptcy. If you buy a repossessed property, you will most likely buy from a bank or mortgage lender, rather than the homeowner. Government statistics show that in 2012 and 2013, over 62,000 properties were taken in to repossession.
It is possible to pick up repossessed properties at up to 30% off the market price. Many investors see this as an opportunity to start off their portfolio, due to the low entry point.
Although buying a repossessed property could seem like a great deal, investors need to be aware that this is not an easy process, but as long as you're willing to invest time and effort (as well as high upfront costs) these property opportunities often represent some very good investments.
Sometimes, buying a repossessed property can be a minefield, and investors should be prepared to accept that something might not go according to plan.
Firstly, you need to consider that the price you are buying at might not always be as good a deal as you think. This is because banks and lenders have a legal duty to obtain the highest price they can on the repossessed properties they are re-selling, as they are essentially looking to recuperate the outstanding debt on the property.
Moreover, a factor to take into consideration is that due to a high amount of investors' interest, nowadays more and more punters are flocking to auction. This can limit the savings available in the purchase price considerably.
It is also worth noting that a property might be often kept on the market by the bank after an offer has been put through for it, leaving the chance for other investors to outbid you. This could mean that all the investors legal and due-diligence fees could be wasted and lost. At the same time, since you are purchasing from a bank/lender, the process of making an offer - and having it accepted is quite lengthy. The agent is legally obliged to place a public notice ('Notice of Offer') and other potential purchasers are invited to bid for a period of seven days from the date of the advert.
If you’re only looking short term, property prices may decrease and the losses could be catastrophic. When wanting to sell, the market could take a dive and you may not able to sell it at for the price you want. The ongoing costs, as well as the stamp duty, estate-agency and mortgage fees, make it an expensive short-term solution.
Owning more than one property is also not tax efficient. You have to pay income tax on your rental income and capital gains tax of up to 40% if you choose to sell.
The big advantages of a pension are employer contributions and tax relief. If you’re lucky enough for your employer to match your pension fund you could be looking at high yields on your investment. Someone earning more than £44,000 pa could also get 40% tax relief on pension contributions.
With property, if you are a higher-rate taxpayer, you are going to have to pay income tax at your highest rate on any rental income and capital gains tax on any sale. With a pension, you are currently able to withdraw 25% of the fund in a tax-free lump sum. And from April 2015, retirees will have a great deal more freedom to use their pension funds as they wish, reducing from a 55% tax rate for withdrawals above 25% to the pensioner’s personal income tax rate.
On the flipside, this will no doubt increase buy-to-let sales with retirees but investors need to be aware of the risks and tax implications. People can take their money out and purchase property with either a deposit or full price, depending on their circumstances. This could generate an income during retirement and may well give the UK property market a dramatic new lease of life next spring.
If you have the knowledge, and can handle the financial risks, buying a repossessed property for buy-to-let investment could be a very financially rewarding solution for you.
If you are a first-time investor though, going down the repossessed route could be time-consuming and complicated. If this is the case, and you are looking to get on the property ladder, you should look into investing in new build properties. Agents like Assetz will offer you high-quality and affordable new build properties, do all the due-diligence for you, sort all legal and mortgage details, and hand you a property ready for you let...if not already tenanted!
Contact Assetz if you want to discuss how to get started in buy-to-let.
Risk Warning and Disclaimer:
The price of property can go down as well as up. Historic performance should not be taken as a guarantee of future performance. Geared property investment with mortgages can increase risk of losing money as well as increasing the possible gains. Mortgage products referred to in the website can be withdrawn by the lender or have rates or other terms changed without notice and reference to any products does not imply they are certain to be available in the future. Mortgages referred to may also have certain applicant restrictions and are for indicative purposes only although reasonable endeavours have been used to ensure that they are available at the time of publication and are applicable to a significant number of our purchasers. This site is for information purposes only and nothing on this site should be taken as definitive investment advice for your particular situation without you seeking additional guidance directly from ourselves or from other finance and property professionals. Property particulars on this site do not form part of an offer or contract. The developer and Assetz Property Ltd, whilst endeavouring to ensure complete accuracy in these property particulars, cannot accept liability for any errors. Valuations of property or indicated rents achievable are either estimated or derived from valuations and/or comparables and can change and should not be relied upon without your own additional valuation and research, but we have carried out reasonable endeavours to achieve accurate indications for these figures. All descriptions, dimensions, areas, reference to condition and, if necessary, permissions for use and occupation and their details, are given in good faith as provided by the developer and are believed to be correct. However, these are subject to change, especially, but not wholly, relating to any property that is off-plan or not yet complete. Any intending purchaser should not rely on them as statements or representations of fact but must satisfy themselves by inspection or otherwise as to their accuracy. The onus is on each individual investor to undertake their own due diligence, enquiries and inspections. Where shown, net yields are calculated as rental income less expected service charges less expected ground rent as a percentage of the property price. No void periods, optional letting agent costs, repairs or other costs are deducted. Our standard Terms and Conditions of Sale will apply. E. & O. E.