Landlords on payment holidays denied buy to let mortgages
Buy-to-let borrowers are urged to think carefully before taking a break in repayments, especially if they are planning on adding to their portfolio in the near future.
As with residential mortgages, landlords have been able to access a break in mortgage repayments for three months since March.
Recent guidance from the Financial Conduct Authority (FCA) means extensions of a further three months are available, with applications for a pause open until the end of October.
Payment breaks do not negatively affect credit files and this appears to be giving the impression that the ability to borrow is not impacted.
The regulator warned that “credit files aren’t the only source of information which lenders can use to assess creditworthiness”.
And lenders are now turning down purchase applications if repayments are not being made on one of the properties in the portfolio.
‘Use as a last resort’
A number of advisers told our sister title, Mortgage Solutions, they have seen this happen in recent weeks.
Edward Peters, buy-to-let specialist broker at Mortgage 1st, said he had several instances where payment holidays were “interfering with mortgage applications” across different lenders.
He added: “People are aware these don’t show as mortgage arrears on credit reports, but this has been extrapolated to a belief that coronavirus holidays have no effect.
“Lenders will often ask if any holidays have been taken on any properties in the portfolio, and this may well affect their lending decision.
“So far, most holidays I’ve come across have been requested only as a precaution against rental defaults, and not to offset an actual reduction in income.
“Landlords need to think carefully when requesting a holiday, especially if other applications are imminent or in progress.
“It’s easy to understand the lenders’ mentality on this. A payment holiday is effectively an admission of not being able to cover the mortgage payment, and so should be used only as a last resort.”
As part of measures to ease financial pressures on households, possessions and evictions are also currently barred.
Landlords have in some cases arguably been encouraged to take payment breaks if tenants cannot pay rents.
For example, Nationwide said it is contacting all its landlord borrowers to let them know holidays are available where rent is not being paid.
Not ‘in the spirit’ of situation
The National Residential Landlords Association said turning down borrowing applications was “not in the spirit” of the special coronavirus measures implemented by the FCA and the government.
John Stewart, deputy policy director for the trade body, said: “The Financial Conduct Authority has been clear that where mortgage holidays are secured in response to coronavirus they should not have a negative impact on the applicant’s credit file.
“It is therefore deeply disappointing that there are lenders not abiding by the spirit of these guidelines, and are failing to support otherwise reliable customers.
“It should not be right that landlords seeking to support tenants genuinely struggling due to the pandemic are being penalised in this way.”
Chris Sykes, mortgage consultant at Private Finance said he could see it from the perspective of both lenders and landlords.
Landlords who are not repaying debt on one property do not appear to be a good lending risk.
Sykes said he also understood why landlords were taking a holiday even if they do have savings and could maybe want to grow their portfolio to spread risk.
He added: “This is a short-term measure and I don’t expect we will see it being an issue in six months’ time as it leaves no lasting negative on the credit file as confirmed by Experian and Equifax.
“We are all aware it isn’t a great situation right now for a lot of people and hopefully these things are only short-term.
“However, I do not think people realise the affect it can have, maybe they should be called an emergency payment break rather than a holiday.”