Regular payment is all that matters

Bob Young

To the outsider, the lot of the landlord may look like an easy one at present. With tenant demand outstripping supply, property investors seemingly have no shortage of interested parties looking to cross their palm with a monthly rental payment.

But although it may appear this simple to the uninitiated, there is often far more to it than that as the recent social tenant debate has proven. Discerning landlords – and more increasingly the lenders that grant them mortgage finance – have always been careful about the tenants they take on and undertake checks and seek references, but the move by a number of lenders to not allow private landlords to rent to tenant on benefits has reignited discussion.

We previously had a stipulation in our underwriting about not letting to these type of tenants and you can understand why lenders want to tread down a similar path. However, with the best will in the world, in practice, this was (and is) difficult to enforce.

Producing initial tenant documentation when the mortgage is first completed is one thing, but checking this every six months or every year would be an arduous process that would be a drain on the resources of some of the larger lenders.

It is left for lenders to find out about the occupants of the property indirectly such as if the tenant goes into arrears and this then impacts on the borrower’s ability to repay the loan.

The whole topic also brings up issues of discrimination and equality. It is unfair to assume that all social tenants will automatically default even if the level of arrears among that demographic may be higher.

What it essentially boils down to is that the landlord – and ergo the lender – are unlikely to be unduly fussed about the profile and background of their tenants as long as the rental income covers the mortgage and is being paid in full each month.

Lenders are free to include whatever conditions they like in their underwriting processes, but they must be careful not to tar all social tenants with the same brush.