Homes for Ukraine Scheme: What it means for your mortgage and insurance
The Homes for Ukraine Scheme allows individuals, charities, community groups and businesses in the UK to house Ukrainian refugees for a minimum six month period. As part of the scheme it offers a £350 month ‘thank you’ payment to sponsors.
In the week since launch, more than 100,000 people have registered their interest in opening up their homes to Ukrainian war refugees. However, the Department for Levelling Up, Housing and Communities did not have a breakdown of how many of those were mortgage borrowers. The government did say the scheme was open to all applicants, which included landlords.
On its website it says that in “some cases” people will need to check with their landlords, freeholder, mortgage provider and insurance company.
“It’s important you think through any possible implications for your tenancy, mortgage, lease and insurance before your guest arrives in the UK,” it said.
It continued: “Lenders have committed to enable as many borrowers as possible to participate in the scheme. If you have a mortgage on the property you will need to contact your mortgage lender. We are working with the mortgage lender sector to standardise and simplify this process as far as possible.”
Noble intentions but challenges remain
Dina Bhudia, managing director and chief executive of P2M Asset Management, said she had already received calls from customers asking about the scheme.
However, she said there were questions around how the £350 payment would be taxed and how this might impact landlords, whether it would be included in affordability calculations or not, and how the scheme would operate under tenancy law.
She said it was unclear how it would interact with the Housing and Tenancy Act, and therefore was ambiguous as to how evictions may work if necessary.
She also noted: “I think people are thinking with their heart here so they may not think to notify their mortgage lender in the first place, they may not be aware that they have to which could create problems further down the line.”
Wesley Davidson, director at Fox Davidson, said the scheme had “noble intentions” but there were “challenges that needed to be addressed”.
He explained: “Properties that are mortgaged will have restrictions on allowing additional people to live in them. Mortgage lenders have specific rules with regard to lodgers, so will they waive any restrictive conditions?
“Where a property is mortgaged as a rental property, lenders typically only allow tenants who are on an Assured Shorthold Tenancy, which would not be the case here. Clearly there needs to be more input from the government and from mortgage lenders so that the scheme doesn’t cause any legal issues for homeowners with mortgages.”
He added that he expected demand to be high, and said the issues were “rather trivial given the hardship many are facing in the Ukraine”.
Jane King, mortgage and equity release adviser at Ashridge Finance, said it would have “no effect on mortgage lending” and that the criteria needed would be very similar to taking in a lodger, which lenders already allow in certain instances.
She said: “They [lenders] do not object to lodgers and the families would not be renting the property on a commercial basis. Rather they are being ‘hosted’ so the income from the scheme could not be used for affordability, unless lenders decide in the future to accept this, and so this arrangement would be fine.
“I cannot think of any pitfalls apart from those who would apply regardless of who they were bringing into their home such as potential criminal behaviour, squatting and so on but those scenarios are very rare.”
However, Chris Sykes, associate director and mortgage consultant at Private Finance, said that while most lenders would allow you to have a lodger with an informal or lodger agreement in place, this was usually for an individual rather than a family and was often “open ended to protect both the homeowner and bank”.
He added that as the Homes for Ukraine was generally aimed at families this could raise some questions for lenders.
Buy-to-let landlords using the scheme could be ‘more complicated’
Mortgage brokers expressed concern around buy-to-let landlords using the scheme, as it could unintentionally violate terms and conditions.
Sykes said: “If letting a buy-to-let on this basis it could be more complicated, especially when needing to remortgage as lenders often go off the lower of the received rental and the market rental for their affordability calculations.”
Shaw added that he was worried about “unscrupulous landlords” taking advantage of the Homes for Ukraine scheme. Bhudia agreed and said there needed to be a safety net in place so that refugees using the scheme were not exploited.
Matthew Rowne, director of The Buy to Let Broker, said: “It is too early to obtain all lenders’ perspective on this at this stage, however lenders and our industry have pulled together in terms of crisis historically, and with such tragic events happening right before our eyes, we should all be doing everything we can to help those in most need, both as an industry and individually.”
Mortgage lenders supportive of the scheme
UK Finance and the Building Societies Association (BSA) are currently working with the government on finalising scheme details, with the aim of it “being implemented as quickly and simply as possible, enabling homeowners to participate easily”, according to a joint statement.
They said mortgage lenders were “supportive” of the scheme, adding that immediate guidance for homeowners and landlords with a mortgage, who already have or wish to express their interest in joining the scheme, is to look at the government website and FAQs.
“It will be important for borrowers, once accepted onto the scheme, to let their lender know”, they said.
Skipton Building Society announced earlier this week that it would support borrowers who wanted to sign up for the scheme and would offer its own vacant properties to refugee families.
Stacey Stothard, head of sustainability at Skipton BS, said the position was a “starting point” and it would “make it as easy as possible” for borrowers to sign up for the scheme. She said it had not received any cases for new borrowers, but had a lot of interest from existing borrowers.
She said for new customers interested in the scheme, they would assess how many adults would be in the property. She added that more guidance was needed from the government on how the grant may or may not impact affordability.
Lloyds Banking Group said it was supportive of the Homes for Ukraine scheme and urged mortgage customers to keep them informed if they were taking part.
They said there would be no change to rates if residential customers choose to rent out a room under the scheme, adding that it would be acceptable under its existing buy-to-let mortgage conditions for landlords.
Nationwide said it would waive charges for residential mortgage borrowers deciding to rent out their property through the scheme.
The typical charge for permission to let would be a one per cent increase on usual rates and members typically would not be able to switch to a new deal, but this would not be the case if borrowers let out their property through the scheme.
Leeds Building Society said it would support the scheme and was looking at turning an unused part of its branch estate into emergency accommodation.
“The details of how it will operate are still being confirmed but we can say we’ll not be imposing any additional charges or increased interest rates for borrowers taking part. There will be no changes to our affordability criteria and the assessments of new mortgage applications across all of our lending will remain the same,” a spokesperson added.
Yorkshire Building Society said it was “definitely interested” in assisting the scheme but there were “nuances and details” it was exploring.
Virgin Money said it was “still looking at how to support it”, while HSBC said it was “actively assessing how best to support this important initiative”.
Barclays said: “We’re fully supportive of this new scheme and we’re working closely with the government as details are being finalised. We want to help make it as simple as possible for homeowners to take part. We’ll update our website as soon as we know more.”
This was echoed by Santander, who said it was “proud to support” the scheme and it would be providing further information to mortgage and home insurance customers in due course.
NatWest said it was in favour of the scheme but was awaiting further detail, and TSB added it was “urgently exploring ways to make it possible for customers to support Ukrainian refugees”.
A Coventry BS spokesperson said: “We want it to be as easy as possible for people to participate and are united with other UK building societies and banks in making it a straightforward process for homeowners.”
The home insurance impact of the scheme
The Association of British Insurers (ABI) confirmed that homeowners who want to temporarily house refugees as ‘non-paying guests’ do not need to inform insurance firms, adding that cover will remain the same.
This applies for the first 12 months of any refugees living with you, including when your policy is due for renewal. After 12 months, if any refugees are still living with you, then you should tell your insurer when you next renew your policy.
As the government will award a £350 per month ‘thank you’ payment to hosts, YourMoney.com clarified whether this statement applied where money is exchanged. The ABI confirmed the information relates to those displaced by the conflict in Ukraine and the payment will not impact insurance.
The guidance added that if homeowners wish to house refugees in their second homes, guest homes or rental properties, or for longer than 12 months at their primary residence, they should discuss this with their insurer in the first instance.