NatWest has been forced to defend its decision to refuse an extension to a buy to let mortgage because the tenant was in receipt of housing benefit. In fairness, NatWest is one of many mortgage lenders who have been caught up in this fiery debate. The Residential Letting Association suggests that this approach is used by 66% of mortgage lenders (which represent 90% of the buy to let mortgage market).
Risk profiling
Despite the fact that the tenant of the NatWest buy to let customer in question had never missed a payment, apparently this all comes down to risk profiling. Mortgage companies are now seeing a greater risk lending to those who depend on benefit-related income. We can only assume that the mortgage companies are fearful that the authorities will eventually cut back on housing benefit. As there is now greater protection for tenants, this could potentially leave many buy to let landlords in a difficult predicament.
A growing problem
NatWest is not the first mortgage company to be “outed” as a consequence of its approach to housing benefit tenants and will not be the last. This is an issue which has been building in recent times due in the main to austerity, the economic situation and the fact that the benefit system is under intense pressure. Even those bodies representing buy to let landlords have been pleading with the mortgage companies to be “less restrictive” on buy to let mortgage approval conditions.
However, it seems that the whole financial sector is moving in this direction and the momentum is unlikely to be stopped unless there is a legal challenge or some kind of intervention from the government.
Social housing in the UK
It is no secret that councils up and down the country have been depending more and more on private buy to let landlords with social housing projects underfunded and running way behind demand. Often seen as a source of secure income, housing benefit tenants may well be cast adrift in the short to medium term. It is worth noting that some mortgage companies are still offering buy to let finance for landlords who have housing benefit dependent tenants. However, will landlords pay more for their mortgages in the future?
The reputation of the UK banking system has not really recovered from the economic crisis with billions of pounds of taxpayer’s money used to shore up the system. This “unfair” approach to housing benefit tenants will do nothing to improve the reputation of UK banks and the growing hatred of capitalism.
Private landlords under pressure
Over the last few years we have seen the UK government increase tax liabilities for buy to let landlords and now we have banks effectively removing what has previously been a secure form of rental income. Slowly but surely private landlords are being squeezed from either side and this will surely have a detrimental impact upon their return on investment. If the element of housing benefit related tenants is reduced and eventually removed from the buy to let sector, this will reduce competition for properties and lead to more subdued rent increases.
As buy to let landlords are the ones taking on the financial risk of a mortgage, surely they should be free to choose their own tenants – albeit at their own risk.