Long-term leases and mortgage providers

I was glad to hear Carolyn Uphill from the National Landlords Association talking this morning on the Today programme about longer term tenancies and the conditions that mortgage providers put on landlords.

I’ve long been ranting to anyone who will listen that there is a conflict between the private rented sector and their mortgage providers. Most mortgage providers stipulate that you must only offer a tenancy of 12 months or less. While that’s perfect for students and short term workers etc, it’s totally impractical for many people who want a home.

One of the reasons that that lots of people want to get on the property ladder is housing security. It’s really hard to settle if you don’t know whether your lease will be terminated by your landlord. If you’re raising a family or caring for a family member, you want to be sure you’re going to be living in the same place with some element of certainty.

Currently in Scotland most tenants are on short assured tenancies. These are typically written with a fixed initial period of 6-12 months and then move to an indefinite lease with a 2 month notice period. It means that the landlord can give 2 months notice at any time and the tenants would need to find a new home. It’s incredibly insecure for tenants.

I’m a fan of short assured tenancies – they work well and serve their purpose – but we also need a solution for tenants who want to stay long term. Landlords can choose to put in place a longer notice period or a longer fixed tenancy period if they want, and not use the short assured standard agreement. However, the next barrier is their mortgage provider.

I understand that mortgage companies have to protect their risk, and that’s why they want to be sure they can carry out repossessions if necessary without worrying about the legal agreement the tenants have with the landlord. But it’s in the mortgage provider’s interest to have a good quality long term tenant who pays the rent and looks after the property. It seems to me that the mortgage companies have de-risked the situation so much that they’ve removed all the upside benefits. Baby and bath water.

Nationwide recently announced it would offer the flexibility of a 3 year tenancy. This is great, but the other big providers have not followed yet. It also means that if you’re a landlord and want to offer longer tenancies, you need to switch your mortgage provider, with all the associated costs.

I really hope that the good quality institutions like Nationwide can lead the change in the mortgage market so that landlords and tenants benefit from better housing security in the private rented sector. It’ll be another step towards housing equality regardless of whether you own or rent your home.



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