Now that mortgage rates have gone up and the sub-prime lending squeeze is on, the big question is, can it ever be acceptable to snap up a “distressed” sale – or, in more direct jargon, a repossessed home?

I know some of you out there find the notion of “distressed sales” distasteful. And, of course, the world of repossessions is not as charming as the world of off-plan luxury flats. Then again, capitalism is often not very charming, is it?

I call Philip Stewardson, a Midlands-based landlord who actively encourages people to sell endangered properties to him. A giant poster outside his office reads “Property Wanted”.

“Our phone is extremely busy,” Stewardson says. “We are getting lots of people with one or two buy-to-let investments to sell – landlords whose fixed rates are coming to an end and who are on variables that might be 2% higher than they are used to.

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• Tales of a landlady: Tax reforms

• Into the sunset

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• Tales of a landlady: Degrees of success

• Tales of a landlady: It pays to shop around

• Tales of a landlady: Residents only

• The ties that bind

• How low can you go?

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• Tales of a landlady: Avoiding the agents

• Tales of a landlady: In the dock

• Tales of a landlady: the age of reason

• Tales of a landlady: Heroes and villains

• Tales of a landlady: High maintenance

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• A waste of energy?

• Tenants like gardens, but not tending them

• In the doghouse

• Parking mad

It’s eviction time

Can investors profit from the rise in repossessions?

• It’s eviction time

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• Do property workshops work?

• A letting gamble

• Spread betting

• When buy-to-let turns from a hobby into a living

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• Landlords: halo or horns?

• Bidding wars

• Time to quit the ring?

“We have just bought a four-bedroom semi just outside Birmingham. The owners had struggled to let it out, and their mortgage repayments had doubled. It was a bargain at £130,000. We’ll spend £20,000 on it – at which point, I expect it will be worth £250,000.”

I know every landlord needs a bargain, but doesn’t the provenance of said bargain make him feel like a rotter? “They were desperate to get it off their hands.”

Another person who has been snapping up distressed stock is Fergus Wilson, who, with his wife, Judith, owns more than 700 houses in Kent. (They are the former maths teachers who estimate they buy a property a week. In April this year, The Sunday Times Rich List put their wealth at £180m.) Don’t they have enough houses already?

“They were all bargains,” Wilson says. Doesn’t he feel a bit bad about it? “It’s a big, bad world out there, and I feel we are doing the seller a favour, particularly if there is a chain involved.”

Landlords motivated to find bargains in distressed sales may be interested to hear about a closely related wheeze – buying up repossessions before they go off to the creditor, then renting them back to the previous owner. David Lawrenson, a property consultant and the author of Successful Property Letting: How to Make Money in Buy-to-Let, explains that it is a difficult business to start.

“You have to identify the area in which you want to buy, do a lot of leaflet drops, then encourage any owners who are struggling financially to somehow get in touch with you,” he says. “It’s quite hard work, but it provides a solution for them and allows you to buy at about 20% below the market value. Then you rent it back to them as tenants.”

Seems a bit harsh though, doesn’t it? “People get in up to their necks. Offering them the chance to be a tenant means they don’t have to move home or admit anything to friends and neighbours.”

Nevertheless, the tenants will probably have to sign an assured shorthold tenancy agreement – which means they could, in theory, be obliged to leave their former home after just six months. Such evictions would not do a lot for the image of us landladies, to put it mildly.

Damian McLaughlin, a property investor living near Gatwick, in West Sussex, has a large portfolio comprised entirely of properties he has rented back to their former owners. He has no qualms about this niche – in fact, he is looking forward to a boom time to come.

Typically, McLaughlin buys at a discount of 10%-20% on the market price, and he has never had any defaults on rent. Nor has he ever had to evict anyone. Everybody wins, he insists. “You are solving a problem for somebody. It avoids the potential for bankruptcy and preserves the former owner’s credit rating. It draws a line under their financial issues.”

He even gives tenants the option to buy back their former home from him at discount after a couple of years – “but nobody has ever taken it”.

McLaughlin admits that some landlords might find this policy somewhat dubious. “When I first heard about it, I was in two minds,” he says. “But I now realise I am helping someone out of a spot. Nobody else can help them. Sometimes tenants are nervous with only a six-month tenure, but I convince them I am in it for the long term.”

It’s making money out of other people’s misfortune, though, is it not? “I haven’t made a fortune,” McLaughlin says. “I haven’t made anything until I sell the property. I think looking at us as vultures soaring over dispossessed people is a view born of ignorance.”

Vultures or not, landlords are lining up along the branches, clearly hoping that the disarray in the financial world might help them to bump up their portfolios in the coming months.

Lee Grandin, managing director of Landlord Mortgages, a specialist buy-to-let broker, says many of his 9,000 clients are getting ready for bargains to come onto the market. “Over the past month, my landlords have been refinancing their portfolios to give them a war chest based on current values,” he says. “This is in case of a dip in the market, when they will snap up some bargains from distressed sellers who have lost confidence.”

Well, nobody said it was a forgiving business.

buytolet@sunday-times.co.uk

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