The Impact of Landlord Regulation on Buy to Let Mortgage Terms, Conditions and Availability
Many buy to let mortgage lenders are still not “ahead of the curve” in terms of understanding the impact of legal and regulatory changes in the private rented sector – and this often leaves their own businesses exposed to losses, says David Lawrenson of private rented consultancy, www.LettingFocus.com
In an interesting piece in Joanne Atkin’s “Mortgage Finance Gazette”, Paul Walshe of Moore Blatch observes that mortgage lenders have done little to protect their own interests and that of their buy-to-let borrowers against a rising tide of complex legislation and potential arrears and possessions claims. He says, “Lenders should be doing more to protect themselves and support the army of amateur landlords, those with just one property, whose number is now approaching one million”.
Mr. Walshe advises lenders to establish better processes for checking that landlords have complied with all the legislative requirements in dealing with tenants in arrears. To facilitate this, he suggests that lenders could set up panels of approved suppliers who specialise in tenancy repossessions to cut the timescale for repossessions and therefore minimise the losses to landlords and potentially, (in a landlord loan default case), the lender.
I think this is potentially a good idea too and it is an action that we always recommend to the mortgage lenders whom we advise in our consultancy work.
More Legislation – Impact on Mortgage Lenders
For a long time, at LettingFocus, we have been saying that mortgage lenders could and should do a lot more to advise landlords of what their legal responsibilities are. But most of them, especially some banks and building societies for whom buy to let is just one line of business, still have a long way to go.
This is rather worrying because the amount of legislation that landlords have to comply with has increased markedly since the advent of the buy to let mortgage in 1996.
One especially important piece of legislation and regulation is that which exists around tenancy deposits for assured shorthold tenancies. Failing to protect a deposit could lead to a fine and a longer wait to achieve possession – which will often lead to an increase in the potential losses a lender faces, in the event of landlord default on their mortgage.
Selective Licensing – What Should Lenders Responses Be
The penalties a landlord faces for not complying with selective licensing requirements are stiffer still. £20,000 in fact.
The London Borough of Newham has already put a selective licensing system in place covering all privately let properties in the borough. And until five years or so have passed and we know of these schemes work or not, (see last weeks’ blog post for more of my views on this!), we can only expect more local authorities to jump on the bandwagon and try to set up their own schemes. (Licensing schemes are a bit of a job creation opportunities in straitened times – financed by landlords, but really paid for by tenants in terms of increased rents. Expect more of them!).
Some mortgage lenders, like RBS, have reacted to landlord licensing by seemingly red lining buy to let loans in places where licensing is in place.
This is an interesting move in itself given that RBS is a part state owned bank – but it is one that ought to also be worrying for Newham’s high profile mayor, Sir Robin Wales. (Newham landlords have always argued that licensing could cut supply of stock in the private rented sector in Newham, though few foresaw that it would be the lenders who would turn “frit”*) .
Inform the Landlords but Cut LTVs
A different approach, which is what we recommend for most lenders, would be for mortgage lenders to write to landlords with properties in places where licensing has been applied, to ensure they know that they have to meet their obligation to register for a licence and to tell them they face heavy penalties if they don’t.
We also suggest they may want to review their loans to value levels in these locales too. I will not be popular with Sir Robin Wales for suggesting lenders do this, but it is another unintended (and possibly unforeseen) consequence of landlords licensing.
*Frit – that great Lincolnshire word once popularised by Margaret Thatcher.
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