Mortgage Lender Restrictions on Landlords Letting to the Housing Benefit Dependent & the Implications for the Govt
Mortgage lenders are increasingly not allowing private landlords to let to tenants on benefits.
This can only lead to even more landlords removing their properties from this end of the market – a part of the market where tenants have very few housing options.
With nowhere else to go, more families will need to be put up in expensive B&B accommodation or hotels by local authorities – at a high cost to the taxpayer.
Private rented sector expert David Lawrenson of www.LettingFocus.com says the lenders’ restrictions are a direct result of the government’s changes to the housing benefit system and to changes in the amount paid, which have made this end of the market too difficult for landlords and too risky for their lenders.
The government urgently needs to change tack and one way to do this would be to re-establish the tenants’ option to nominate payment of the housing benefit element in Universal Credit to be always made direct to the landlord, as the default option.
In recent months, another mortgage lender has put a restriction in place stopping private landlords letting to people on housing benefits.
The Mortgage Works, the buy to let part of Nationwide, has issued this statement to the media: “TMW does not currently lend on buy-to-let properties (that are) let to local authority tenants. TMW mortgage terms and conditions were re-issued last year and this included greater detail on acceptable and unacceptable tenant types.” (Source: GW 25/2/13)
State owned Lloyds Banking Groups’ BM Solutions buy to let unit already has a similar restriction – and we expect some other lenders to follow suit.
So why are the lenders doing this?
Well, the issue is that the government’s numerous changes to housing benefits – the caps, the cuts in entitlement, the decoupling from local rent levels and now, the moves (under Universal Credit) to increasingly try to force payments to be made to the tenants direct (not the landlord) have made letting to people on benefits increasingly risky and unattractive for landlords.
This is especially the case in London where there is a vibrant non-benefit dependent private rented sector market to tap into instead.
Letting to the Benefit Dependent is Not Easy
Letting to people who are dependent on benefits has never easy for landlords for a number of reasons explained in depth at other blog posts at LettingFocus.com – though experienced landlords can make it work for them. (Mostly these reasons are not to do with the nature of the tenants but rather other external factors around the clunky system of housing benefit admin and payment methods and higher insurance premiums.)
But the recent changes to housing benefit look a step too far and clearly the lenders think that the risks of landlords getting into trouble, going into arrears and ultimately being repossessed are just too great.
We think this is why some lenders have stopped landlords letting to this part of the market. (What the landlord is supposed to do when someone’s circumstances change and has to go on benefits is not exactly clear for all lenders. We advise tenants to not tell their landlord in case the landlord thinks he needs to then evict. Mortgage lenders who have imposed restrictions are, of course, rather coy on this issue.)
And so we now have a situation where more people on benefits cannot find accommodation in the private rented sector, which is the only housing option open to many of them.
They then have to approach the councils who have to source expensive temporary accommodation, including in hotels and B&Bs, at great cost to the taxpayer.
In London, Crisis found that only 1.6% of accommodation in the shared house market in the private rented sector was available to people dependent on housing benefit. Our findings are that it is a similar experience in the rest of the private rented sector.
Our view, based on our work in this area, is that lenders’ blanket restrictions preventing landlords letting to people on benefits is unnecessary – though in selective areas, the arrears statistics might justify such restrictions where the mortgage loan to value on a particular property is high and the landlord’s experience level is low.
IMPLICATIONS FOR GOVERNMENT
The moves by the lenders ought to come as a huge blow to the government, though our assessment is that understanding of this issue in government circles is fairly poor.
As the lender restrictions sink in, even fewer landlords in the private rented sector will be able to let to people dependent on housing benefit. And these people will need to turn to their local authorities in ever increasing numbers.
We can expect more stories of families being put up in hotels and B&Bs, for longer periods, and at great cost.
In summary, it is clear that some mortgage lenders have done their risk assessment – and delivered their verdict on the government’s changes to housing benefit. And the taxpayer will increasingly be picking up the bill for this.
The solution now must be for the government to look at their welfare strategy.
A good place to start would be to amend the Universal Credit to allow tenants to nominate payment of the housing benefit element to be made direct to their landlords, at least initially. This would hopefully allow the Council of Mortgage Lender to suggest to lenders that they could lift restrictions on landlords letting to people on benefits.
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