Are BTL lenders right to restrict landlords from letting to tenants on housing benefits?
Stuart Gregory, managing director at Lentune Mortgages
I’m sure that the recent coverage of a NatWest landlord borrower didn’t escape your attention. This led to a petition, and now a declaration by the lender that it is reviewing its policies.
The central point of the story, at least initially, was about an error made by the landlord’s advisers. This was subsequently forgotten in the clamour to blame the lender; it could have easily been avoided.
Are we really at the stage where lenders are going to be questioned over every piece of lending criteria they write? Yes, it is frustrating for a borrower to be stopped from proceeding with their plans, but giving lenders the flexibility to decide who they wish to lend to is surely one of the cornerstones of mortgage lending.
In my view, having worked within several high street lenders in the past, it is all about risk. Nothing more, nothing less.
Take this particular policy. NatWest has chosen, up until now, not to lend to borrowers who intend to have DSS tenants. It’s not been hidden, it’s been stated policy. It’s a simple thing to verify, whether you utilise a mortgage sourcing system or a supplementary lender criteria platform like Knowledge Bank – who, ironically, have at least 10 lenders that will offer mortgages to those who intend to let their property to DSS tenants.
Two words can explain why lenders could well decide not to lend to landlords having DSS tenants: universal credit. When you take into account the hardship this particular government policy has caused and the frankly incompetent implementation of it, is it any wonder lenders are reticent about being involved?
Let’s say the payment of rent is delayed. This has a knock-on effect to the landlord, and perhaps the maintenance of the mortgage, which then leads to increased staffing costs to deal with arrears.
Where does it all end? The mortgage market has always been about lenders being able to find niches that they can utilise to gain business. Let them lend on the basis they choose.
David Smith, policy director for the Residential Landlords Association
The case of Helena McAleer has rightly raised concerns that the lending policies of some banks are preventing landlords from renting to benefit claimants.
Having been told by NatWest bank that her buy-to-let mortgage would be withdrawn because she was renting to claimants, McAleer spoke movingly about the difficulty and her anxieties about being forced to evict what were good tenants. We welcome the subsequent decision of NatWest to review its lending practices in light of the high profile that this case has received, but it is just the tip of the iceberg.
Research carried out by the RLA’s mortgage consultant 3mc last year found that 66 per cent of lenders representing approximately 90 per cent of the buy-to-let market did not allow properties to be rented out to those in receipt of housing benefit. With growing numbers of benefit claimants now relying on the private rented sector for their home, we cannot have a situation where banks are flatly denying landlords mortgages when they are ready and willing to rent to claimants.
Such a blanket policy, that does not properly consider the actual risk posed by different tenants and the fact this risk is primarily borne by the landlord, cannot be right. Lenders must better understand the market and the risks associated with their lending.
While we call on the government to work with the industry to address this, there are also measures needed to ensure the system of universal credit provides greater confidence to tenants, lenders and landlords.
We need to improve the process whereby payments are made directly to the landlord where a UC claimant builds rent arrears, known as an alternative payment arrangement.
At present, landlords have to wait for two months of rent arrears to build before they can apply for one and they then have to wait, on average, for over nine weeks for it to be processed.
This is too long and needs to be urgently addressed. We also need to improve the court system with a new specialist housing court to allow both landlords and mortgage lenders to recover possession when faced with arrears and enable them to reduce the risk associated with default. This is something the government has pledged to look at this year.