Buy to letters want help too
Posted: December 7th, 2008 | Author: James | Filed under: Uncategorized |The National Landlords Association wants the government to extend its mortagage support scheme to buy to let mortgages. The spokesman is quoted as saying:
If the endgame is to prevent people losing their homes, then it makes no sense for buy-to-let mortgages to be exempt from these new measures. By giving landlords breathing space, they would have a chance to offer any struggling tenants a similar period to get their finances in order and prevent the homes being repossessed
This is obviously not the correct way to solve the problem. The correct way would be to offer the tenant housing benefit to carry on paying the rent. Otherwise, the tenant is relying on the generosity of the landlord. This is something I don’t want to test.
One example of the difference is that you cannot get housing benefit if you have over £16,000 in savings. For the mortgage support scheme, the level is £60,000. Why the difference? These renters are also the potential first time buyers who are needed to ‘kick start’ the housing market. Therefore punishing them for saving is crazy.
The real reason the NLA wants this is is to help landlords who may be subsidising their tenants to pay the mortgage, or experiencing a void due to rising unemployment. Far more desirable for tenants would be the ability to demand a credit check on your landlord when moving in, and the requirement that the landlord places several months of their mortgage as deposit.
Confessions out of the way first… I am a BTL landlord, though hopefully not of the worst kind. (Actually I am technically a Let-To-Rent landlord since I originally bought the flat to live in and let it out when I needed to live, and rent, elsewhere.) I only have one rental flat and then only due to circumstances that made it easier to rent than sell.
I agree that it is madness to suggest the Government helps tenants by extending the mortgage support scheme to BTL mortgages. The only way the government should intervene in BTL mortgages is to ensure tenants are not disrupted when BTL landlords that have over extended themselves run into trouble and get their flats repossessed. That said it would normally be in the lending banks interest to keep a good tenant in the property.
The NLAs point about the fact that this is needed to ensure that landlords are able to help struggling tenants seems completely disingenuous to me. Unless they obligate landlords to help tenants as a result. Either way the idea is daft and inefficient.
There are issues, though, with drawing too many parallels between the mortgage support scheme and housing benefit. Housing benefit is a handout. The mortgage support scheme is effectively a Government-backed loan since the reduction in mortgage payments proposed would ultimately be recovered through higher mortgage bills down the line or a longer mortgage term. What the Government is doing is underwriting the defaults. This is not nothing, and does lead to valid questions over what the Government will do for tenants that run into trouble. But it’s not a simple handout either.
So far as I can see, the specifics of the mortgage support scheme mean that in practice everything is geared so people are unlikely to default. For one thing the mortgage is still secured on the property, as I understand it people would have to walk away from their home before the Government is at any risk of getting a bill.
Given that lots of lenders would give a six month mortgage holiday to mortgagors before all of this, a two year partial interest holiday is not nearly as radical as the Government would like your average home’owner’ to believe.
If the Government did a similar thing for tenants it would essentially be offering ‘take now pay later’ loans with no security. That’s arguably the fair thing to do from the perspective of ensuring the same result for the struggling renter as for the struggling mortgagor, but it would involve the Government finding the cash for those loans now (fat chance) and taking all the risk with no security (fat chance, with knobs on).
Then there’s the point that this Government cash would go straight into the pockets of landlord’s in most cases, so the Government would effectively be insuring their rental income and in many cases their means of paying their BTL mortgage. This would probably mean fewer tenant defaults and may even keep rentals artificially high.
I agree, though, that things here are somewhat stacked against the renter.
I think what’s really happening is the Government has found a cheap (near zero cost in the short term) way of making homeowners (majority of voting population) feel more secure in their homes in a time of strife. For the most part they’ll pay for this themselves in the long run so actually the Government hasn’t done much. And it won’t do much for renters either.
I’m not suggesting this is fair. But it is what I think is going on.