Accountancy, tax and business advisory group Vantis is urging buy-to-let mortgage holders to ensure dialogue with lenders is started early if they are struggling to meet monthly payments, as repossessions reach record levels. In November, the Department for Constitutional Affairs released figures for mortgage repossession actions entered in the third quarter 2006 of 34,626, a rise of 15% on the same period last year.

However, Frank Wessley of Vantis Business Recovery says most mortgage companies will often allow landlords some leeway rather than instant repossession in order to avoid the costs of repossession and sale.

He said: ‘‘Supply is outstripping demand in certain areas and landlords aren’t generating the incomes they anticipated. We would urge investors to talk to their mortgage provider immediately if they have concerns. They may be able to negotiate a longer term or even a different product to make repayments more manageable.’’

According to Wessley, part of the problem lies in amateur investors failing to factor in costs such as buildings insurance, maintenance and management fees or void periods when the property stands empty between tenants.

The situation looks set to worsen, too, with the Council of Mortgage Lenders (CML) forecasting higher levels of arrears and repossession to come. The CML expects 130,000 mortgages to be more than three months in arrears by the end of 2007, up 10,000 on its previous prediction. Furthermore, the CMLs estimate for repossessions has been increased by 25%, to 15,000 repossessions in 2006 and 2007 apiece, from the 12,000 predicted in February.

Industry warnings have prompted lenders to tighten their lending criteria on new-builds amid concerns that valuations have been too flattering because they failed to take into account separate incentives offered by developers. There have also been concerns that an oversupply of rental units in some developments has been depressing yields. Last year, Portman Building Society became the first lender to refuse to offer buy-to-let mortgages on new-builds. Several lenders have increased the deposits required on buy-to-let mortgages for new-builds to 25% of the property’s value, compared with standard minimums of 15%.