UK Council of Mortgage Lenders May Change Buy To Let T's & C's

UK Council of Mortgage Lenders May Change Buy To Let T’s & C’s

Lenders may have to change their terms and conditions on buy to let mortgages and rethink their attitudes towards standard tenancies, according to the UK Council of Mortgage Lenders (CML).

The Council of Mortgage Lenders (CML) was responding to calls by Labour leader Ed Miliband for longer-term tenancies in the private sector after he said he wanted to see greater security offered to households in rental accommodation. Similar calls have also been mounted by Shelter, and longer tenancies were also discussed in Parliament at the end of January.

But the CML acknowledges that lenders are nervous about extended tenancy agreements because of the risk of a build-up of rental arrears leading to buy to let mortgage arrears, affecting lenders’ ability to repossess the property if a long-term tenant is in place.

The CML says that buy to let mortgage terms and conditions permit landlords to offer either a six- or 12-month Assured Shorthold Tenancy (AST’s), typically allowing landlords to regain possession of their property after six months with a two-month notice period.

The CML observes: “Were longer-term tenancies to lead to the build-up of higher mortgage arrears over time, they would become more difficult to manage, not least because a lender’s ability to obtain vacant possession would be impeded.”

However, the CML makes clear that, in principle, mortgage lenders are not opposed to longer-term tenancies.

The CML notes: “We favour a policy approach that delivers an adequate supply of affordable housing in a range of tenures that meets the needs of consumers.” It also says that private renting plays an increasingly important role in the market and that individual landlords have done much to increase the quality of housing in the private rented sector.

The CML also notes that in recent months, a number of campaigning bodies and political parties have raised questions about whether the typical tenancies of six to 12 months currently offered to most of those renting in the private sector provide the security and stability that some tenants would like.

It goes on: “We accept that the implications of longer-term tenancies need to be explored, but any resulting changes must reflect the needs of landlords and the lenders who fund them, as well as those tenants who would opt for a longer-term tenancy. And it should be remembered that many tenants will continue to prefer a shorter tenancy of six or 12 months because it better suits their needs. We are working to understand the barriers to longer-term tenancies, but change can only come if everyone’s interests are protected.”

Last year, the National Landlords Association (NLA) found that 49% of landlords had experienced missed payments by tenants within the preceding 12 months.

The CML concludes: “Part of the solution may be provided by break clauses, over and above what is standard in an Assured Shorthold Tenancy of six or 12 months. There will also have to be different terms and conditions in these cases. For longer-term tenancies to be attractive to all parties, lenders, landlords and tenants would also need to investigate fair and transparent ways of reviewing rent while the agreement runs its course. The lending industry acknowledges the aspirations for longer-term tenancies and will continue to work with landlords, tenants and policymakers in determining how they could be made more widely available. Lenders may take the view, for example, that longer-term tenancies might be an option for experienced buy to let landlords. But let us not assume that these will instantly become the norm: for many groups of private tenants, the shorter and more flexible terms associated with existing six- and 12-month tenancies are likely to remain the preferred option.”

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