‘I helped my tenants and was denied a mortgage’: landlords punished for taking mortgage holidays

Landlords who took a mortgage payment break in order to give their tenants a rent holiday have had loan applications rejected even when they were in no financial difficulty themselves.

Property owners have seen buy-to-let applications repeatedly turned down by mortgage lenders that have looked negatively on applicants who requested a break from their repayments.

Landlords fear that being denied new, cheaper mortgages will leave them unable to secure their finances in a market where rents are falling.

Others are eager to snap up bargain properties after the Chancellor’s recent stamp duty giveaway but are concerned they will be denied the loans that would allow them to expand their portfolios.

Unlike homeowners struggling to pay their mortgage, renters were offered no direct support from the Government if they were unable to pay their housing costs. Tenants who faced financial difficulty were encouraged to ask landlords for help.

To aid this process, banks were ordered to offer landlords with buy-to-let mortgages a payment break, which would allow them to defer or waive rent payments.

However, this policy has had major repercussions for landlords, who have now found themselves unable to refinance loans and take advantage of lower interest rates. Eleanor Williams of Moneyfacts, a financial data firm, said the average five-year fixed-rate buy-to-let mortgage rate had fallen from 3.24pc at the start of March to 2.99pc today.

Some landlords have been denied new mortgages even for properties on which no payment holiday was taken.

Mark Webb, 49, a Bristol landlord, helped his tenants by passing on the payment holiday he took on one of his eight properties. However, he has since had mortgage applications for other properties repeatedly rejected.

He feared he would be left paying higher interest rates as a result of helping his tenants. After weeks of trying, Mr Webb finally found a bank willing to offer him a mortgage.

“It was a headache,” he said. “Some tenants had been affected by the situation, some hadn’t. But if landlords had known about this at the beginning they might have thought twice.”

Angus Stewart of Property Master, a buy-to-let broker, said a growing number of landlords were being caught out. “Many took repayment holidays in good faith when their tenants had trouble making payments,” he said. “But lenders are adopting a view that rather than it being a prudent thing to do, it signifies that the landlord’s finances are under stress. For many this is far from the case.”

As well as those trying to refinance existing loans, landlords who want to buy new properties have also encountered difficulty. There has been a boom in the number of property investors who want to expand their portfolios after the Chancellor’s temporary cuts to stamp duty in England and Northern Ireland.

Since April 2016 buyers of second homes and buy-to-let properties have had to pay a 3 percentage point stamp duty surcharge. First-time buyers and home movers have now largely been exempted from the tax. While landlords remain subject to the surcharge, they can still make large savings.

Stamp duty on residential properties in England and Northern Ireland

For example, the purchase of a £500,000 property will incur a £15,000 tax bill between now and March 31, rather than the usual £30,000. Landlords in Scotland can also benefit from lower bills for Land and Buildings Transaction Tax, the Scottish equivalent.

The tax break has already boosted activity in the struggling buy-to-let sector. However, Chris Norris of the National Residential Landlords Association, a trade body, said some landlords might be denied the chance to take advantage.

“The deferral [mortgage holiday] scheme was specifically designed so that landlords could provide as much support as possible to tenants struggling to pay their rent due to Covid-19,” he said. “It would therefore be wholly unacceptable for banks to penalise landlords for doing the right thing by their tenants.”

While taking a mortgage holiday does not leave a negative mark on the borrower’s credit file, Mark Harris of SPF Private Clients, a mortgage broker, said banks could easily find out about payment breaks.

“While the payment deferrals do not affect the applicant’s credit score, lenders can ask the question and may pick up the information from bank statements, which is why ongoing and future mortgage applications may be affected,” he said.

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