One year into the credit crunch, and buy-to-let repossessions have almost doubled. The latest figures from the Council of Mortgage Lenders (CML) show that approximately 1,800 buy-to-let properties were taken into possession by mortgage lenders in the first six months of this year, up from around 930 in the first half of 2007.

Buy-to-let repossessions, which used to run at a lower rate than in the wider mortgage market, are now at the same level, at 0.16pc of all loans.

More worryingly, repossessed buy-to-let properties are proving far harder for lenders to sell on than previously owner-occupied homes.

The number of all repossessed properties still owned by lenders has almost doubled in the past year, but the number of those which are former buy-to-lets has more than tripled.

While the absolute numbers of buy-to-let properties being repossessed remains low, a sharp rise in the proportion of buy-to-let mortgages which are more than three months in arrears suggests repossessions will increase further.

In the first half of 2007, 0.63pc of all buy-to-let loans were more than three months in arrears, but by the first half of this year that figure had almost doubled to 1.1pc.

However, falling into arrears - and even the receipt of a repossession order - need not be the end of the road for the buy-to-let investor. It can take several months for proceedings to be completed, during which time you can - and should - sell the property if possible.

"Repossessed homes generally sell for significantly less than their market value," says Philip Martin of Mortgage Rescue Network, which comprises a group of sale-and-rent-back investors who also offer repossession advice. "Selling of your own volition is infinitely preferable. In many cases another landlord can be found to purchase the property."

You can also fight repossession at the hearing. Under some circumstances a judge will suspend repossession, although this is more common for owner-occupiers than it is for investors.

"There is usually a lot less mitigation with buy-to-let cases, which are viewed as commercial risks," says Mr Martin. A judge may consider suspension in some circumstances, however. "Mitigation could be demonstrated either by the hardship that would be caused to vulnerable tenants in occupation, or alternatively by demonstrating that a shortfall caused by the forced sale would have a significant detrimental effect on the landlord's personal circumstances, such as bankruptcy or the forced sale of his own home," Mr Martin explains.

A good reason for falling into arrears, such as illness or job loss, or an unexpected void period which has since been resolved, might also be taken into account. If you can provide a one-year assured tenancy and proof of demand from a local letting agent, indicating that your property is "sustainable", this would also help.

"If you can demonstrate that mortgage payments can be made from this point forwards and that a small but regular contribution can be put towards the arrears, this should be sufficient to suspend the possession order," Mr Martin says.

If you're unable to successfully fight repossession, the lender will try to sell the property.

"The time taken to sell depends on geographic location and condition - the average at present is 135 days," says Neil Warman of mortgage servicing company Homeloan Management. "Some lenders have started to make greater use of auctions, not only if there is little interest in the property after it has initially been marketed, but also to stimulate competition."

Until the property is sold, the original owner is responsible for any ongoing costs relating to the property, including legal fees and valuations. If the property is taken into possession and is sold for less than the amount of the outstanding loan, you are also responsible for any shortfall. In some cases, lenders will simply write this off as a loss, in others, they may pursue the owner for the debt.

Lenders insist that they are no more likely to pursue an investor than they are an owner-occupier: decisions are taken on a case-by-case basis. "However, while there is no emphasis placed on pursuing investors rather than owner-occupiers, there is more likelihood of a potential recovery with an investor as there may be more assets to consider," says Mr Warman.

In England and Wales, lenders have 12 years to recover any shortfall, although they must notify you within six years of their intent to recoup the money. In Scotland they have just five years to recover the debt. Interest may be charged on the outstanding amount, but if the investor advises the lender that they are in severe financial difficulty then the interest may be frozen.

While it is rare for homeowners to be forced into bankruptcy following a repossession, it does happen - and is more common where buy-to-let investors have mortgages on several properties from the same lender.

"It is much more difficult to prevent repossession when a lender has lent on numerous properties within a portfolio," Mr Martin says. "In many cases lenders prefer to follow the bankruptcy route."

Anecdotal evidence from Baker Tilly, the accountancy firm, suggests the number of portfolio landlords being forced into bankruptcy is on the increase.

"We are getting more inquiries from buy-to-let landlords," says Geoff Carton-Kelly, head of restructuring and recovery at Baker Tilly. "It tends to be those landlords who came late to the market and who took advantage of spectacularly good loan-to-value ratios," he says. "In order to keep their portfolios working they need to keep remortgaging and trading up, but that game has come to an end because there is no longer the mortgage finance available."

Buy-to-let investors who are facing insolvency will need to make the somewhat unpalatable choice between bankruptcy and an individual voluntary arrangement (IVA).

"Whether you opt for bankruptcy or an IVA depends on a number of factors, not just the size of your debt," Mr Carton-Kelly says. "If you have no other assets - in other words, you have nothing else to lose - then bankruptcy may not be such a bad option. The bankruptcy regime is not as tough these days as it used to be."

However, while that may be true, going bankrupt is still no picnic. Your entire estate will be transferred to a trustee who will sell it in order to pay off your creditors, and you may lose a part of your salary for the term of the bankruptcy, which is usually one year. Any assets you acquire during that time - for example if you inherit some money or receive an insurance payout - could also be seized.

In most cases bankrupts are now discharged with a clean slate after one year, although information remains on your credit file for six years, during which time you will struggle to get credit, you will not be allowed to manage or start a business, and some professions, including accountancy and financial services, will be closed to you.

"If you do have a job and other assets, including your own home, then an IVA will usually be a better bet," Mr Carton-Kelly says.

An IVA is a formal agreement between you and your creditors, drawn up by a licensed insolvency practitioner. Under the terms of an IVA you agree to pay off a portion of your debt over five years. Depending on your circumstances, the portion you pay may be as low as 35pc of the total debt. Unlike bankruptcy, an IVA has the advantage that the creditors cannot pursue other assets, such as your family home.



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