Here’s something shocking: you may be helping your clients to commit mortgage fraud without knowing and, as a result, you are potentially jeopardising your business.
Mortgage brokers who put landlords on a conventional buy-to-let mortgage where the property is let using a short term vehicle, such as Airbnb and Tripadvisor, are effectively committing fraud. As ever, the mortgage industry is slow to catch up on changing trends technology and the Airbnb trend is no different. But this time, the cost of not keeping up with the times could be putting your clients at risk.
Mortgage Strategy recently undertook an investigation, which showed that the vast majority of lenders are not even close to being ready for new technologies – they are saying loudly and clearly that these are specialist products. “We want nothing to do with Airbnb,” one lender told Mortgage Strategy, and this was a common theme of the investigation.
These products are specialist and they must be treated that way for as long as mainstream lenders refuse to get in the game.
That is why Brightstar Financial has teamed up with Castle Trust to put forward one of the first Airbnb style products on the market. Through our Private Label brand, we launched The Temporary Letter – a product developed specifically to support those brokers whose clients are using Airbnb or similar tools to generate rental income from short term lets.
As Mortgage Strategy research shows, lenders are “uncomfortable” with short-term vehicles and do not want to be involved with them in any way. But this is a growing part of the market, as more landlords look for investments that can deliver greater yields as a way of combatting increasing costs.
Castle Trust executive director Matthew Wyles says the average property let on a short-term basis in 2016 generated double the annual rental income of a typical BTL property, according to the latest Holiday Property Investment Report, which also stated that the UK has 165,000 holiday lets.
Wyles says there are many thousands more properties being promoted for short-term rental on platforms like Airbnb and Tripadvisor. But many traditional buy-to-let mortgages do not accommodate short term rentals as the terms of the loan will require that an AST is in place.
So, the question is, why would a broker put his own practice at risk by allowing clients to stay on a classic mortgage if they are planning to use Airbnb? Lenders have proven their zero tolerance approach to mortgage fraud in the past when they have struck brokers off their panels for the slightest infringement. Specifically, we have seen brokers barred by lenders for wrongly placing clients, intending to live in the property, on a buy-to-let mortgage.
The FCA was very strict on brokers and clients who “gamed” the system in this way and there is a real risk that this is on the rise again. So, the potential misuse of a BTL mortgage is certainly a theme that is already clearly on the radar.
The regulator has long remained tough on lenders’ keeping a tight grip on their panels. Often this has led to brokers being removed without detailed reason because of fears they may tip off potential fraudsters. Between 2010 and 2014, FCA data shows that 676 broker firms were kicked off of lenders’ panels. It can be a frustrating and worrying time for brokers if they are denied access to some of the largest lenders without being provided with a reason.
That is why it is crucial to be fully aware of changes in the buy-to-let market and make sure clients are being placed on the right deals and that they are not committing inadvertent fraud.
We are seeing immense changes in the buy-to-let sector today with new stress testing and regulation coming from the Prudential Regulation Authority. But we are also witnessing a technological revolution in how homes are rented and the information landlords must provide to lenders. The FCA and lenders have shown they are vigilant so it is important that brokers take seriously the risks of providing mortgages when they are not appropriate.
Rob Jupp is chief executive of Brightstar Financial