More owners of very expensive property at the top end of the market are being repossessed, according to reports from estate agents around the UK.
ADVERTISEMENTThe past six months has seen an increase in repossessions of country properties with a value of more than £5m as the rise in mortgage rates takes its toll.
The London property market has also been hit, with international owners of homes worth up to £20m deciding to give their properties back to the lenders, rather than try and refix the terms of their loan.
“It’s strategic. People borrow heavily when they’re buying those assets for all sorts of tax reasons,” Philip Harvey from buying agents Property Vision told the Daily Telegraph.
“Because money’s cheap and they can do other things with their money that makes them more money, so they don’t need to use their own cash, they borrow it instead.
“But when the market turns and the capital value has gone down, why hold on to it?”
Refinancing might be more expensive than walking away, particularly if the buyer is an international one and harder for the banks to track down and reclaim the money they are owed.
Another problem is that lenders have tightened their criteria for borrowing and property owners wanting to remortgage might find they are refused.
Some purchasers took a gamble during Covid with a move to the country and subsequently regretted their impulsive move.
Wanting to return to their pre-pandemic lifestyle, they initially tried to sell through the traditional route of estate agents but, with no takers, were forced to face repossession because they could neither remortgage nor afford their new repayments.
In a sign of the times, the property market has altered dramatically since the previous downturns of the 1980s and 1990s when people borrowing at the lower end of the scale faced repossessions.
Since then, property prices have soared and, with the cost of borrowing so low over a long period, potential buyers have increasingly taken a risk on high loans to buy properties at the top end of the market.
This worked well until the Bank of England began raising its interest rate in December 2021 from an historic low of 0.1% to the present 5.25%.
It was forced to act after coming under pressure as inflation surged from around its target of 2% to above 10% at one stage.
That was in part due to a supply and demand problem following the opening up of world trade after the pandemic and the effects of higher energy prices because of the war between Russia and Ukraine.
Food prices have risen sharply and most UK consumers admit to concerns about the present cost of living crisis, with some 52% of the population saying they have been affected.
Property experts say they expect to see repossessions increase over the next few months at least as economic growth remains slow.
Some point out that the situation is not bleak for everyone, suggesting what is a misfortune for one seller is a buying opportunity for another as bargains can still be had if a buyer has been strategic and is waiting on the sidelines for prices to drop.
