Mortgage brokers have defended the actions of NatWest, following reports that it had refused to extend a buy-to-let mortgage because the tenant was in receipt of housing benefit.
NatWest is one of a growing number of lenders that do not provide buy-to-let loans to landlords whose tenants are on housing benefits.
L&C Mortgages associate director David Hollingworth says: “In this case, demanding the landlord evict their tenant may not have been a particularly well thought out response.”
The landlord did not evict her tenant – an elderly woman who had never missed a rental payment. Instead she remortgaged the property with another lender.
But Hollingworth points out: “As with many strands of lending criteria, there’s a range of different approaches from lenders in what they expect from a tenancy agreement.”
Lentune Mortgages managing director Stuart Gregory says: “Lenders have to be allowed to decide who to lend to, and no lender makes a decision on their lending policy without completing research before the decisions is made. It’s about risk profiling.”
He points out that on Knowledge Bank there are at least 10 lenders who will lend to landlords with tenants in receipt of housing benefit.
However there are concerns that a blanket ban on benefit claimants across all mortgage products may be deemed unlawful.
Housing charity Shelter has claimed this could be indirect discrimination under the Equality Act 2010. The charity has written to RBS, owner of NatWest asking it to reverse is decision.
It is clear that NatWest isn’t the only one to impose such stringent rules. Recent research by Bespoke Finance found that 81 per cent of lenders forbid landlords renting to people on housing benefit.
Bespoke Finance director Adam Hosker says: “This NatWest story initially came about as a result of bad mortgage advice.”
In this particular case, NatWest says it only granted the mortgage in the first place because of paperwork mix up with the broker.
But Hosker adds: “The facts remain that a tenant who has no income, no job and no assets will remain a higher risk for landlords.
“It’s about time we had this debate. We may agree this mortgage condition is unsightly, but it’s be hypocritical to suggest banks should not be allowed to take a view, whilst landlords can.”
However the Residential Letting Association has called for lenders to be less restrictive. The RLA research suggests 66 per cent of lenders — representing 90 per cent of the buy-to-let market — did not allow properties to be rented to tenants in receipt of housing benefit.
RLA policy director David Smith says: “With growing numbers of benefit claimants now relying on the private rented sector, it is shameful that many lenders are preventing landlords renting property to some of the most vulnerable in society with little or no justification.
“The banks have had long enough to get their house in order. It is now time to take firm action to stop such unjust practices.”
The RLA has written to the government asking it to end these “discriminatory” practices.
Many point out that these terms and conditions highlight the important role the broker has to play in the buy-to-let market.
Libra Financial Planning consultant Sebastian Riemann says: “Not all lenders have the same restrictions in place. There are sufficient options and I would urge anyone looking at rental properties to obtain professional advice.
“The lending criteria is very much based on the lender’s attitude to risk and each will restrict in different areas to ensure they do not leave themselves overexposed.”
Many buy-to-let landlords will be in the HMO market, or have their lending with commercial rather than high street lenders. These may have more flexible terms, he says, although this flexibility often comes with a higher price.
He adds: “NatWest didn’t do anything wrong, they simply enforced a clause in the contract. There are a lot of lenders that could assist in these circumstances but they are unlikely to offer market leading rates as they are taking on more risk.”
Gregory adds: “The role of the broker is to be accurate, ask the right questions and not try and place borrowers with lenders who wouldn’t have accepted the application in the beginning. “
Hollingworth adds: “Lenders do of course have control over what they will and won’t accept on all aspects of lending and without it we’d run the risk of a distinctly homogeneous set of criteria across the market.”
In a statement NatWest says: “The bank has specific lending criteria and is not able to offer mortgages in certain circumstances, which are made clear on a customer’s terms and conditions. There are alternative providers who may be better suited for customers in these circumstances.”