Buy to Let Mortgages and Tenants on Benefits
Some mortgage lenders still don’t let landlords who have mortgage loans with them to let their properties to tenants who are on benefits.
Many private landlords are reluctant to let to tenants who are dependent on housing benefits, preferring tenants who do not have to rely on the state for any assistance. There are a number of reasons why:
1. Caps to housing benefits and restrictions on amount paid to the 30th percentile of local market rents make this end of the market unattractive.
2. Even when LHA payments can be made direct to the landlord, payment is in arrears, not in advance and usually on annoying four weekly, not calendar monthly cycles. Where LHA is paid to tenants, this often causes cash flow problems for them when rent is due calendar monthly – leading to rent arrears.
3. LHA claims require lots of paperwork.
4. Housing Benefit departments can be slow to start payments. Awards can stop without warning when tenants’ eligibility changes.
5. There’s usually no deposit to protect the landlord against property damage. And even where a local authority provides a deposit guarantee, many landlords tell us they are hard to claim against and take ages to settle.
6. Constant tinkering with the system of LHA / Housing Benefit / Universal Credit has led to private landlords getting confused and simply avoiding this end of the market altogether.
7. Insurance premiums are usually higher for lets to housing benefit recipients.
But there is another reason why some private landlords are actually unable to let to people on housing benefit even if they want to.
Some Mortgage Lenders Don’t Like Benefit Tenants
This is because some mortgage lenders still actively restrict private landlords from letting to tenants who are dependent on housing benefits.
A quick survey found two major buy to let lenders still have such restrictions in place.
BM Solutions, part of part state owned Lloyds Banking Group, has within its underwriting criteria a restriction which says landlords cannot let to tenants claiming housing benefit. Accord, a mortgage brand of Yorkshire Building Society, does not allow to lets to “DWP Supported Tenants” or leases to housing associations or local authorities.
A spokesman for Yorkshire Building Society said, “We entered the BTL market with a specific profile in mind – experienced but not professional landlords seeking to purchase properties of reasonable quality, and we shaped lending criteria to meet that market. We didn’t feel that DWP supported tenants would generally fit in with the profile of landlords or properties that we are looking to lend to. This is mainly due to concerns about poor maintenance and repairs, and that the rental values of the properties we are seeking will not be at the lower end of the scale.”
Lloyds Banking Group said, “We constantly review our policies, however, the current terms and conditions of our mortgage policy do not enable borrowers to let their property to tenants claiming housing benefit. Should the circumstances of the tenant change, we would expect the landlords to consider each case on an individual basis. Landlords do not need our consent to terminate or renew a tenancy agreement.”
The Lloyds Banking Group statement effectively says that the restriction disallowing landlords to let to “Benefit Tenants” is not enforced in practice.
Government Policy and Mortgage Lenders
Government, which has an interest in getting vulnerably housed people housed in the private rented sector, are probably not aware of this. We have certainly never seen the “housing benefit restriction” mentioned in any past government paper.
At the town halls, most of the caseload of those in need of accommodation will consist of people who are dependent on Local Housing Allowance.
But private landlords who have buy to let mortgages with the BM Solutions subsidiary of the state owned Lloyds Banking Group would currently be unable to offer accommodation to them.
The most interesting this about this is that from all the work we have done in this area, we have seen no statistical evidence to suggest that landlords who let to tenants on benefits are any more likely to default on their mortgages than landlords who avoid such tenants.
Lloyds Bank Buy to Let Lending – Something of a Curiosity
All the same, the retail part of Lloyds Banking Group has a rather curious lending strategy – which actively limits mortgage loans across the whole group to no more than three per landlord.
This would seem to make them unique among lenders in that it results in them getting a higher share of the more amateur landlord business, who are the ones more likely to struggle with the demands of letting to people who are dependent on the hopelessly not-fit-for-purpose Local Housing Allowance Housing Benefit system.
This may explain Lloyds Banking Group’s thinking, though I suspect the restriction is more a case of “we’ve always done it like that”.
But we still remain baffled about the strategy to restrict lending to no more than three per landlord – an open invitation to the more inexperienced landlord and the ones more likely to become an arrears statistic on Lloyds Banking Group’s buy to let loan book.
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