Landlords who have purchased houses from property clubs advertising inflated rental yields are finding themselves unable to attract sufficient rental income to cover their mortgage payments.
Data from the Council of Mortgage lenders shows the number of buy-to-let repossessions rose 12% to 1,900 in Q2 2011 up from 1,700 in Q1.
Ian Potter, operations manager at the Association of Residential Letting Agents, says that buy-to-let purchases made through unscrupulous firms are partly to blame for the increase in repossessions.
He says: “We regularly hear of buy-to-let repossessions and arrears cases arising from rogue clubs and the problem could get worse if we see a prolonged period of economic strife.”
David Lawrenson, founder of Lettingfocus.com, says rogue investment clubs usually advertise properties located in disadvantaged areas where it is difficult to achieve sufficient rental income to cover the mortgage.
He says: “These firms are still around and over the next few years, while economic conditions remain difficult, we will see more of them springing up and the number of associated repossessions rising.
“In the current market, lots of people want to dabble in property investment, which just adds fuel to the fire.”
Paul Shamplina, founder of Landlord Action, says: “We have seen a surge in repossession cases where landlords have bought properties from an investment club and cannot pay the mortgage because the property does not attract the rental yields they were promised.”