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Buy-to-Let Landlords Take Note!

In a salutary warning to buy-to-let landlords that they are exposed to the full ferocity of the marketplace, a depressed investor paid a heavy price for his persistent failure to keep up with his mortgage when a lender appointed receivers over his property within days of his discharge from a mental hospital.

The investor bought a house with the benefit of a £320,000 interest-only mortgage which was specifically designed for buy-to-let properties. His repayments were consistently in arrears and he was repeatedly warned that the lender would take all necessary steps to protect its security if he failed to keep up.

After the investor was compulsorily detained in a mental hospital, the lender appointed receivers on the basis that he was incapable of managing his own financial affairs. He had in fact been discharged from hospital two days before the appointment. However, the property was subsequently sold at a price which did not clear the mortgage debt.

The investor, amongst other things, relied upon the Consumer Credit Act 1974 in claiming that there was an unfair imbalance in his relationship with the lender. Given his mental health difficulties, he argued that he had not been treated with ‘sufficient understanding’ in the period leading up to the sale.

However, in dismissing his challenge to an earlier decision to like effect, the Court of Appeal found that the lender had acted reasonably. It had ‘bent over backwards’ to accommodate the investor in the past and its decision to ‘play hardball’ was commercially justified by the investor’s long history of default.