Despite the fact that social housing in the UK is struggling to meet current demand, to say the least, an alarming new trend has emerged in the buy to let mortgage market. Backed by the Residential Landlords Association it has been revealed that 90% of mortgage providers in the buy to let market are refusing mortgages where the tenant is in receipt of housing benefit. Historically, housing benefit was seen as a secure income for private landlords but recent developments have caused a significant about turn.
NatWest in the firing line
NatWest is currently in the spotlight after refusing a mortgage to a private landlord where the tenant was in receipt of housing benefit. It is alleged that the bank tried to pressurise landlord Helena McAleer into evicting the tenant in question. She refused and was thankfully able to secure mortgage finance elsewhere with no such conditions. It is worth adding that the tenant had never missed a rental payment and had an exemplary record with the landlord.
While NatWest is in the firing line at the moment it is worth noting that 90% of mortgage operators offering buy to let mortgages have taken a similar stance. There is now intense pressure on the government to tackle what many believe is blatant “discrimination”.
Is this move justified?
There is no doubt this subject has stirred up some very strong emotions and a serious backlash against some mortgage providers. However, just a few days after the Guardian article there was an interesting follow-up piece in the Telegraph.
It would appear that universal credit, the much hated hybrid of the UK benefit system, may be causing major problems with buy to let investors. While the new system has yet to be rolled out across the country there are more than 1 million people currently in receipt of universal credit. The previous benefit system often saw housing benefit payments for new claimants taking two weeks to be processed. At this moment in time it is taking an average of between five and six weeks for such claims to be processed under universal credit. There are also reports of delays of up to a year when chasing rental arrears.
Rental arrears
Data provided by the Residential Landlords Association confirms that over the last 12 months 61% of tenants in receipt of universal credit were in rental arrears with their landlords. This compares to just 38% in the previous 12 months. The average rental arrears are now well over £2000; a figure which is 49% up on October 2017. So, unfortunately buy to let mortgage providers may well be taking flak as a consequence of the botched rollout of universal credit?
Finding a solution
Councils up and down the country are depending more and more on private landlords with social housing numbers nowhere near the levels required. Even though the UK government has released new capital for local councils to increase their social housing, this will take many years to rectify. If you take a step back and look at the situation from a distance, there has been an increase in the risk profile of buy to let investors where tenants are in receipt of housing benefit. This is not the fault of the landlord, or the tenant, but unfortunately until the universal credit system is better streamlined and more efficient, is there really a solution?
Conclusion
On the surface it is easy to blame mortgage providers for refusing finance to acquire property where tenants are in receipt of housing benefit. However, whatever the situation, it does seem a step too far to try and pressurise a private landlord to evict a perfectly responsible tenant. At the moment there are still some mortgage companies that will provide finance for buy to let investors with tenants in receipt of housing benefit. As these numbers fall away, will mortgage companies start to charge a premium for such a service to buy to let investors?
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