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Buy-to-let lenders look to ease council tenant restrictions

Robyn Hall

December 4, 2012

The potential change of heart comes after property experts raised concerns that their existing policies restrict vulnerable people getting into housing.

The UK has a huge social and private housing shortage and more people than ever before are being forced into rented accommodation. But some landlords are prevented from letting property to tenants in receipt of housing benefit – blighting the lives of thousands living in economic uncertainty while they wait to get a job.

But now both BM Solutions, part of the state-owned Lloyds Banking Group, and Accord Mortgages both say they are reviewing their current criteria.

A spokeswoman for BM Solutions said: “Through our buy-to-let criteria we are actively managing the risk profile of this type of lending. Historically this type of tenant has been of a higher risk, and this is reflected in our criteria. We are currently reviewing this aspect of our lending criteria and will communicate the outcome of this review when appropriate.”

And Chris Maggs, Accord Mortgages national account manager for buy-to-let, said: “Our range of mortgages and lending policy is continually evolving and we would not rule out changes in the future to satisfy requirements of the private rental sector – providing applicants meet our fundamental requirements of being experienced buy-to-let borrowers with a good financial track record.”

LettingFocus blogger and property expert David Lawrenson contacted the lenders last month questioning their decision to restrict lending on properties that would be let to benefits-assisted tenants.

Lawrenson said: “I do not have an axe to grind with either of these lenders – it is up to them if they want to restrict their criteria. But I have not seen any evidence that suggests tenants in receipt of housing benefit pose a greater arrears risk to landlords than other tenants.”

He added: “People in government don’t know this is going on despite saying they want to get vulnerable people into housing. It’s my view that the government doesn’t understand the private rented sector and don’t really know what they are doing.”

As well as BM Solutions and Accord, Aldermore, Precise and Godiva also place a restriction on this type of tenant while The Mortgage Works, Abbey for Intermediaries and Paragon accept housing-benefit tenants.

Mortgage Introducer asked Housing Minister Mark Prisk what he thought of Lloyds Banking Group’s decision to exclude housing-benefit tenants and if this was acceptable given the shortage of housing available but he declined to comment.

The Council of Mortgage Lenders maintains that the assumption that lenders will not lend to landlords who want to rent to benefits-assisted tenants was incorrect.

A spokesman said: “For the small number of lenders that may impose restrictions on this basis there are a number of factors to consider.

“There may be potential cash flow problems due to housing benefit payments normally being paid in arrears and the increased potential that housing benefits paid to the tenant and not the landlord may not to find its way to the landlord, thereby jeopardising the serviceability of the mortgage.”

John Heron, director of lending at Paragon, said tenants on housing benefit are not in any fixed state.

He said: “When a landlord lets a property the tenant can experience financial hardship during the tenancy and may at anytime make a claim for housing benefit. Tenants can move in and out of benefit as a result of changes in their circumstances which is beyond the control of landlords and lenders.”

Heron said Paragon had seen no evidence in its lending history that tenants on housing benefit result in any deterioration quality and so should not be discriminated against.

Chris Norris, Head of Policy at the National Landlords Association, said the current barrier from mortgage companies makes letting to local housing allowance recipients difficult – with unencumbered landlords being the only ones in a position to explore this option.

The NLA’s latest landlords’ survey showed that 55% of landlords felt that buy-to-let lenders did not consider their individual circumstances.

Norris said: “If a mortgage provider were to offer a product to allow letting to LHA tenants this would encourage greater investment in the sector.

“There is a huge market for tenants in receipt of housing allowance and if the private-rented sector doesn’t help to support housing provision many tenants will be left homeless.”

He added: “With this in mind it is essential that mortgage providers look to lend to landlords of all tenants irrespective of where they derive their income.”

But Alan Cleary, managing director for Precise Mortgages, warned that the risk lenders perceive housing-benefit tenants pose may be set to increase with the onset of Universal Credit looming.

He said: “The Universal Credit system due to come in next year will create an even bigger risk to landlords who currently have tenants in receipt of housing benefit because the rent contribution will no longer be paid directly to the mortgagor but in one lump sum directly to the tenant.”


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