In a new opinion piece for CIH Scotland, Mike Bruce, chief executive of Weslo Housing Management reflects on borrowing conditions in the Buy to Let market and its place in an ever growing private rented sector.
Recent reports on borrowing conditions in the Buy to Let market caused me to reflect on this specialist form of lending and its place in an ever growing private rented sector. Specifically, I was disturbed to read of a Residential Landlords Association survey which claimed that Buy to Let landlords were being barred by their mortgage providers from renting property to tenants receiving housing benefit. Impossible I thought, and surely illegal. But no, here it was in front of me that 66% of those sampled said they did not allow properties to be rented out to those in receipt of housing benefit.
On further inquiry, I found that the ‘survey’ constituted hypothetical enquiries to 58 lenders so perhaps not the most robust of projects but nevertheless one factor remained for me, gnawing away at my sense of reason. How on earth is it possible for banks to set out conditions which deny housing access to a significant part of the population which, in the face of tightened mortgage lending conditions imposed by the same banks, are now having to turn to the private rented sector for accommodation?
Now I have already taken issue with lenders in the Buy to Let market over what I see as a lack of diligence employed in making these loans. All too often I found that lenders’ sole concern in advancing funds to facilitate Buy to Let purchase was whether the borrower had the ability to make repayments. Not rocket science I hear you say.
But, and this is my point, in an increasingly specialist market, lenders should be satisfying themselves that borrowers know how to be a landlord. They should be checking whether the borrowers are aware of the obligations – legal and otherwise – that they are taking on and will be accountable for. But they’re not. It seems that if you can satisfy the lender that you can make repayments then you can crack on and become a landlord. Are funders even aware of the myriad of new obligations and responsibilities placed on landlords in the private rented sector by a succession of Government initiatives (particularly in Scotland) designed to improve conditions and security for those tenants in a sector which, let us not forget, has more than doubled in size since the financial crash of 2008?
At the very least they should be making sure that the would-be landlord is aware of what he is taking on and either has the expertise to succeed or ensuring that they secure the services of a professional lettings agent to ensure they will be operating within the law. After all, if someone wanted to take out a commercial loan to open a butcher’s business, the lender would surely want to know what the borrower knew about being a butcher, or insist that he employed the services of a qualified butcher to bring in the professional expertise required. Or at least I hope they would!
In an ever complex world where the private rented sector is becoming a more significant part of Government housing policy, becoming a landlord should not be any different. Then, when funding Buy to Let mortgages, funders would not have to rely on outdated, prejudiced, discriminatory and yes, ignorant, policies which have the effect of denying housing to a growing number of our citizens. They would be lending to responsible borrowers with more than a working knowledge of what it takes to be a good responsible landlord and the environment they were entering.
When faced with the fact that some of their members are pursuing such a discriminatory line, it seems that the CML are content to say that they are not aware of lenders having stated policies prohibiting borrowers from letting properties to people on benefit.
My suggestion to them is that they should wake up – even anecdotal research based on the above tells us that, if not stated policies, then it is at the very least, not uncommon – and conduct a proper widespread piece of research to determine just how widespread this practice is in the sector, so that it can be exposed for what it is – a ridiculously outdated piece of thinking which does the banking sector no credit. And they should do it quickly before a Government distracted by other matters at the moment, finally gives this matter the attention it deserves and does it for them.