Landlords ARE being penalised by lenders for taking mortgage holidays
Warnings published in April that advised landlords to be wary of taking a mortgage holiday are turning out to be true. Mortgage broker Daniel Lee, principal of Legacy Financial Consultants, told landlords to ‘think very carefully’ before taking a payment holiday, particularly if they then were to carry on receiving rent from their tenants
Mortgage broker Daniel Lee, principal of Legacy Financial Consultants, told landlords to ‘think very carefully’ before taking a payment holiday, particularly if they then were to carry on receiving rent from their tenants.
But reports in national newspapers this week now show that landlords who took either mortgage holidays or applied for bounce-back loans are being marked down as a greater lending risk by mortgage lenders such as Paragon and The Mortgage Works.
Vanessa Warwick, the cofounder of Property Tribes, told The Times: “Covid has exposed weak business models, and taking a loan is signalling to lenders that you did not have a robust business.”
Daniel Lee says: “I’ve seen this problem gathering momentum over the past couple of weeks.
“Interestingly enough, it’s the bigger portfolio landlords who have been rejected by lenders after taking a mortgage holiday – I think some saw this as a way to build up a buffer zone to hedge against their tenants not being able to pay their rent in the future.
“But this was a dangerous approach – I’ve had a portfolio landlords get into this kind of trouble and interestingly it’s the ones who took the payment holidays but continued to collect the rent who have had the most difficulties.
“We’ve got to look at this from a lenders’ point of view – if a landlord doesn’t have the spare funds to cover a void period for a few months and has to go to the government for help, should they really be in this market in the first place?”.
Mortgage brokers are having to call lenders for updates throughout the day to get the latest information, while some high street lenders have pulled out of the buy-to-let market only to re-enter the following week, says Lee.
“We’ve seen some investment and BTL lenders close their doors to all lending for the time being and some lenders have raised their rates to a point where it doesn’t become attractive for the client – in essence pricing them out of the market, but at the same time some lenders have actually lowered their interest rates.”
He says rates are also changing rapidly too. “We’re seeing product changes such as tracker rates that were available only four or five weeks ago are higher than previously.”
Valuations
It can be challenging to get a mortgage as some lenders’ criteria are becoming more stringent amid fears about rental returns, while getting a physical valuation carried out is proving tricky.
He adds: “Mortgage lenders are switching to automated valuations which might become more of a feature post the COVID-19 pandemic – we might see this speed up the process of valuations, or it might even make them cheaper.”
