NatWest’s Heartless T&C’s
A recent story in the press has highlighted the dangers of not checking your mortgage provider’s lending T&Cs.
The landlord, upon advice from a mortgage broker, took out a NatWest mortgage on her rental property. When she applied for a further advance on her mortgage, she was stunned when the bank told her she had to evict her tenant or pay several thousand pounds in costs to be switched to a different product.
What the landlord hadn’t realised was that NatWest doesn’t accept tenants in receipt of benefits, so by letting the property to a tenant claiming welfare support, the landlord had breached her mortgage terms.
Making a Tenant Homeless
The landlord was devastated. Her long-term tenant was an old lady with mental health problems, who would struggle to cope with a move to a new home.
“I was angry at the fact that another human being could ask me to kick out another human being,” the landlord says.
Quite rightly, the landlord refused to put the old woman out on the street. She argued that the tenant was reliable and always paid her rent on time, but the bank refused to budge.
“The bank has specific lending criteria and is not able to offer mortgages in certain circumstances, including where the applicant or broker has advised they want to let the accommodation to Department of Social Security tenants,” they said.
The bank told the landlord her only option was to pay £2,500 in fees to exit her existing mortgage early and find a different lender.
Broker Accepts Liability for the Mix-Up
Fortunately, the landlord’s mortgage broker accepted full liability for the problem. They admitted their advice was incorrect and they should never have advised the landlord to take out a mortgage with NatWest. In addition, they have agreed to cover all the costs of moving to a new lender. So, everyone’s happy.
Or are they?
Tenants on Benefits An Important Issue
This story highlights an important issue. Firstly, landlords must check the T&Cs of their mortgage lender if they want to let properties to benefits tenants, as some lenders have a strict ‘No DSS tenants’ policy. Secondly, be aware that this might be a problem if a working tenant subsequently loses their job and ends up claiming benefits. If your lender has a ‘No DSS’ policy, you could be in breach of your mortgage terms, which will be a problem.
Why are Benefits Tenants Stigmatised?
There are lenders out there who happily accept benefits tenants, but the real question is: why is this an issue? There is no evidence to suggest benefits tenants are more likely to default on their rent or cause property damage. Many would argue that this is an outdated viewpoint and today’s society should not be stigmatising people for claiming state help with their rent and living costs.
Indeed, Theresa May has recently gone on record to say society needs to change its attitude towards those who live on social housing. She says the stigmatisation of council housing tenants is outdated.
Lenders who accept social tenants point out that doing so is not risky to the lender.
“Lenders are underwriting the landlord. A decision to lend should be based on the borrower’s credit profile and ability to pay along with the quality of the security provided,” says Mortgages for Business.
If you want to target social tenants or are concerned that your tenants may at some point end up on benefits, it is important you consider your lender carefully when taking out a buy to let mortgage. Whilst many lenders have removed draconian restrictions from their lending T&Cs, not all have, including NatWest, as we have already seen.
Simon Nunn from the National Housing Federation says banning tenants on welfare is unenforceable and wholly unfair, which is why most lenders have stopped doing it.
“We’d encourage all lenders to follow suit by scrapping these restrictions – there needs to be a step-change across the sector to get away from the view that tenants on housing benefit are unwelcome,” he says.
The best course of action for landlords is to approach a mortgage broker and be very clear about your tenants’ situation.
Do you let to benefits tenants? Have you had any issues with your lender? Let us know in the comments!
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