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Selective licensing could pose problems for lenders

Robyn Hall

April 5, 2013

Historically imposed on single street or single block areas that have been hit with anti-social behaviour, Councils can now decide for themselves if they want to impose a selective licensing scheme – which makes landlords have to apply for a license for each property and meet certain conditions.

Already the London Borough of Newham – home to Stratford’s plush multi million pound Westfield shopping centre and the Queen Elizabeth Olympic Park – has introduced the scheme covering the entire area in a move it hopes will make it fairer for tenants and landlords alike.

But lenders like state-owned Royal Bank of Scotland – which also owns NatWest – currently does not lend to landlords with properties covered by selective licensing, effectively ruling themselves out of lending on properties across a vast geographical area worth millions of pounds.

A 2-bedroom flat in Stratford’s plush Icona Point overlooking the Queen Elizabeth Olympic Park is currently on the market for £440,000 according to Rightmove. Meanwhile a 4-bedroom terraced property on Stratford’s Torrens Square is on the market for £399,950. Both would be ideal investment properties with Stratford just eight minutes away from the City of London but would-be landlords would now have to sign up to the scheme.

A spokesman for NatWest Intermediary Solutions said; “I can confirm that it is our current policy, and has been for some time, to not accept applications for buy-to-let mortgages where the landlord requires a selective licence.

“We will continue to monitor and regularly review our policies in accordance with changing market conditions.”

Concerns raised

The London Borough of Newham is the first to apply the scheme blanket-style across the whole borough but there are other councils in consultation over the issue. Liverpool, Cornwall, Hastings, Waltham Forest, Salford and Bristol are all believed to be considering Newham’s approach while Oxford is expected to have completed a phased roll-out of the scheme by the end of the year.

Steve Olejnik, head of sales at Mortgages for Business, warned: “If the long term plan is to make all private sector landlords become licensed then good landlords will survive. But my fear is that if other councils start to impose a licensing scheme on all landlords there will be a knee jerk reaction from lenders.”

Olejnik said RBS had taken a typical lender’s view that if there is a designated area with a specific issue it is easier not to lend in it.

“In my view lenders should stick to their normal lending principles regardless of the need for a license; is the property a sound security and is the borrower a good risk,” he added.

Chris Norris, head of policy at the National Landlords Association, said he thought lenders are concerned that the existence of a licensing scheme may have a long-term downward effect on the value of the property.

“Also lenders do not want to become the licensee themselves should they have to repossess the property as they will have to comply with the all the conditions of that license and deal with the costs that entails,” he said.

But Charles Haresnape, managing director of residential mortgages at Aldermore disagrees that the scheme will have a detrimental effect on the marketability of such properties.

“I think these schemes can only have a positive effect,” he said. “They will improve the quality of landlords and the condition of the properties they own.

“We don’t have a specific policy on this and instead judge each case on its merits. Our general underwriting principles over-ride this scheme. We would not lend on a property in a poor state of repair or valued at less than £75,000 regardless of the requirement of a license. Similarly if the case passes our criteria, we would want to see the license if one was required.”

Haresnape doesn’t believe there will be an en masse adverse reaction from lenders which he said usually only happens when it is perceived that the regulator will take a negative view on the issue.

“In this instance I do not think the regulator will get involved,” he said.

Precise Mortgage is another lender not concerned about the increase of selective licensing schemes and has already adopted early measures to counter the issue.

Alan Cleary, managing director of Precise, said: “We have a system already in place which would identify a postcode in Newham and then would flag this up to the underwriter who would condition the offer subject to the conditions in place on the license. Precise are comfortable lending on these properties; should these schemes become more widespread we have the systems in place to deal with this.”

Haresnape cautioned, however, that if more councils do follow suit it would warrant a wider debate with the involvement of the Council of Mortgage Lenders.

A spokeswoman for Paragon said: “Paragon has comprehensive experience in lending on all property types and we review each property on its merits. We do not distinguish between areas that have requirements for licensing. Where there is a requirement we will ensure that a licence is in place prior to advancing a mortgage loan.”

And a spokeswoman for BM solutions said: “We are naturally supportive of any scheme aimed at improving the quality of housing stock in the private rental sector and whilst we would currently consider a buy-to-let mortgage application under such a scheme we will continue to review our policy closely as further details become available to us.”


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