Buy-to-let and tenants with benefits

Journalist: Anna Sagar, Mortgage Solutions / Specialist Lending Solutions

ended 01. April 2022

Looking to speak to mortgage brokers about what their experience is like with buy-to-let cases with tenants on benefits. What are lender attitudes like? Have you found it harder to place cases? What are the challenges with placing these cases and how do you overcome them? And what advice would you give to landlord BTL clients who have tenants on benefits/want to let to tenants on benefits? 

5 responses from the Newspage community

"The majority of lenders won't lend to landlords if they think there's going to be a tenant that's getting what used to be called DSS, and there are even fewer lenders if it's going to be a council tenancy rather than an individual. It usually means higher rates, bigger deposits and more scrutiny on the case using lenders that aren't on the high street and you'll tend to have to be an experienced landlord. It's not something you should enter into lightly."
"Buy-to-let lending on properties with tenants on benefits does not suit every lender's appetite. However, the buy-to-let area is abundant with specialist lenders prepared to accommodate almost any potential investors' need. As complex finance experts, finding a suitable lender for non-standard lending situations is not an issue for us. But making sure the application lands on the right lender's desk is key to success in this area. There will usually be a lender willing to offer, but borrowers should expect to pay a higher rate or lender fee in order to gain access."
"Buy-to-let mortgages for landlords who wish to let their property to tenants on benefits, or rent to councils, will usually require an experienced landlord and, in most cases, specialist lenders, which means higher fees and higher rates. In some cases, more significant deposits are required, too, which tend to be the stumbling block for many landlords. Another potential obstacle for landlords is obtaining the correct insurance, which can be a lot more complex if landlords choose to go down this route."
"The buy-to-let mortgage market is more restricted when it comes to letting to housing benefit or DSS Tenants. We have a reduced number of lenders, which in turn usually means rates can be a little higher. However we still find approximately 70% of our specialist lenders will accept tenants on benefits. The circumstances of the landlord tend to have the biggest impact on rates, such as credit score, experience and available deposit. For first-time landlords, it could be an added complexity that may be worth leaving to more experienced property investors."
Some lenders have a block policy in not entertaining BTL applications where the occupants are on benefits. Some of the reasoning behind their negative approach is down to a number of factors which may include serving eviction notices in case the tenant finds themselves in difficult situations and the rent is not paid which perhaps could subsequently lead to the landlord defaulting on the mortgage repayments which could ultimately lead to repossession which is where the major issues begin. This is the case, especially where the AST is between the landlord and a corporate management company or the local authority itself where eviction becomes a near-impossible task. There are few specialist BTL lenders who are open to these types of lending The advice to landlords is to ensure the ASTs that are in place are for short periods of no more than12 months at any given time to allow eviction to take place immediately after the term has expired and to also ensure that they can cover any void periods of non-payment of rent until the AST expiry. It is also wise to ensure that the rental income is paid directly to the landlord as opposed to the tenant.