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BTL: compel, comply, cough up

Buy to Let mortgage contract clause

Santander found itself the focus of a kerfuffle hosted by Mortgage Strategy over its Buy to Let mortgage contract clause requiring landlords to secure the “the maximum increase in the rent which can reasonably be achieved” at times of review.

Brokers and their representatives weighed in with arguments such as: it not being in the best interests of consumers; rental cover being the only measure that matters; the clause being excessive and disproportionate; and undermining the landlord-tenant relationship.

No previous concerns

The bank, bless it, reasonably enough points out the clause has been in its BTL contract since it entered the market in 2011. It is at pains to say that no-one has raised concerns about it putting the onus on landlords to make a dash for cash in the six years since.

So why is it an issue now, particularly?

Well, the financial goalposts have shifted somewhat since 2011. And the shifting has been ordered by HM Treasury and abetted by the PRA.

The growing encumbrance being shouldered by the landlord, following the recent tax regime changes, seemed set to put upward pressure on rents because the post-tax margin enjoyed by the BTL mortgagee is surely narrowed in many/most instances.

They will naturally seek to shift or share that burden. Which can mean rent hikes that “can reasonably be achieved”, to borrow Santander’s wording.

Landlord “hammering”?

As rents rise without a concurrent improvement in the ability of tenants to absorb the increases, we can all look forward to the landlord class getting a hammering in the press and on social media.

Individual landlords, faced with such criticism, may well fall back on shifting the blame to those lenders such as Santander which impose max-rent maxims: “I had to do it, or my lender could (perhaps would) find me in breach of my mortgage conditions.”

Could or would is an interesting distinction. It would be fascinating to know how frequently Santander takes issue with its borrowers for not raising the rent. And what then happens?

Meanwhile pressure is applied from another direction. The PRA’s intense scrutiny of the BTL market, resetting the bar for the approach to underwriting, will also have consequences for landlords’ finances and therefore tenants.

Generation Rent, it appears, faces paying the rising bills for the gang-squeeze on landlords, with HM Treasury’s revenues the only real winner.

Hinckley & Rugby Building Society head of intermediary sales Carolyn Thornley-Yates.

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