April 28, 2020
Buy-to-let mortgage holidays – what do landlords need to know?
There’s no doubt we are still living in extraordinary times. Lockdown measures will be in play until at least May 7. And potentially for much longer than that.
Despite this, and the social distancing measures in place preventing most home moves from happening, the property market is still functioning. Albeit in new, innovative ways.
Demand for rental homes is holding up – and is, in fact, bouncing back after an initial (and entirely expected) coronavirus-based decline, according to the latest Zoopla Rental Market Report.
The research found that demand rebounded by 30% over the two weeks to April 14, a trend being seen across the UK by region and price band. This followed an initial 57% drop in demand in the fortnight leading up to March 30.
The findings also revealed that there has been no mass withdrawal of rented properties listed to let, with this number down only 3% compared to the beginning of March.
That said, some landlords will have been severely hampered by the coronavirus crisis. In particular those with student lets or those whose tenants cannot currently pay their rent.
One of the steps taken by the government to protect the rental market has been to ask lenders to offer three-month mortgage holidays. This is for borrowers experiencing financial pressures as a result of Covid-19.
Here, we analyse what buy-to-let (BTL) mortgage holidays are. And, just as importantly, which lenders are currently offering them.
What is a mortgage holiday?
To begin with, it was unclear if BTL borrowers would be granted the same three-month mortgage holiday as traditional borrowers. The government, though, soon announced that residential BTL landlords would also be eligible for the same breathing space as homeowners if their tenants are struggling to pay rent due to Covid-19.
The measure was introduced to alleviate the possible financial pressures on landlords and tenants during the coronavirus crisis. Rumours abound that the mortgage holiday payment could be prolonged (potentially to six months) if required.
The UK’s biggest building society, Nationwide, was quick out of the blocks. It extended the three-month mortgage repayment holiday to BTL landlords.
“As the UK’s second-largest buy-to-let mortgage provider we feel it is important to extend protection to landlords and their tenants during this uncertain period.” Henry Jordan, director of mortgages at the high street lender, said at the time.
“We have extended mortgage payment holidays to include rental properties so that landlords with tenants who are unable to meet rental payments because of coronavirus are protected as much as possible.”
Barclays, meanwhile, originally said it would not be offering mortgage holidays to BTL borrowers. But it quickly changed its mind. It is now allowing BTL mortgage holders to ask for a payment deferral of up to three months if needed.
At the end of March, comparison website Moneyfacts.co.uk approached some of the biggest lenders in the BTL market to see whether they were offering mortgage holidays or not.
As well as Barclays and Nationwide (the latter through its The Mortgage Works arm), Coventry Building Society, HSBC, Paragon Bank, NatWest/Royal Bank of Scotland, Santander Bank, OneSavings Bank (Kent Reliance) and Virgin Money are all offering mortgage payment holidays for BTL landlords.
Landlords must apply online. All the lenders offer online self-certification forms to allow for the application of a mortgage payment holiday.,
It’s still unclear if Lloyds Banking Group or Precise Mortgages are offering mortgage payment holidays.
If you are unsure about your lender’s position, contact them as soon as possible to find out where you stand.
What does a mortgage holiday involve?
For three months you would not be obliged to make a repayment to your lender if you opted for a mortgage holiday.
Remember, you’ll only be eligible to apply if your mortgage payments are up to date. And your tenants are unable to pay rent due to financial difficulties occurring because of coronavirus.
Lenders have reassured borrowers, however, that applying for a mortgage payment holiday will not affect their credit rating.
This is not free cash, though. Or a way out of payment. Your monthly mortgage repayments will increase to add on the missed months. And additional interest accrued once the holiday is over.
Alternatively, you might wish to extend your mortgage by three months. Contact your lender to find out your options.
Although most landlords have an interest-only BTL mortgage, this isn’t universally the case. Those landlords making regular monthly repayments should, in most cases, be able to receive a mortgage payment holiday if needed.
How long are they taking to process?
It varies from lender to lender, with Santander asking its borrowers to allow 10 working days for applications to be processed. NatWest has stated that applications received where the payment due is less than two weeks away may not be processed in time. But the bank will let landlords know within five days of their application to confirm the status of their account.
HSBC recently put a temporary stop on accepting BTL mortgage applications. It states on its website that it will reply to mortgage holiday applications within a week. Coventry Building Society says it is prioritising applications based on the earliest payment date.
Landlords with a BTL mortgage with The Mortgage Works (part of Nationwide) should make their application through The Mortgage Works website. The building society says it will respond within 10 working days. However, it may need extra time due to the high number of applications.
This BuyAssociation article explains more about BTL mortgage payment holidays, who can apply, the possible downsides, and why landlords should think carefully before applying.
Despite the troubled times, HSBC are the exception rather than the norm when it comes to stopping BTL mortgage applications. Of the 49 BTL lenders operating in March, only seven have stopped lending. This means there are 42 lenders still in the game even at the height of the Covid-19 pandemic.
Different lenders are ‘de-risking’ against different types of landlords (for example portfolio landlords or first-time landlords). Meaning there are now fewer options. But options still remain.
If you’re looking for advice on how to deal with tenants in these troubled times, we can help. This practical advice and guidance from the Guild, originally appearing in Landlord Today, is a great place to start.
For all the latest news on coronavirus and the property market, check out our Twitter feed here. You can also see the government’s coronavirus guidance for landlords and tenants here.
Here at Atkinson McLeod, we offer guidance on buying, selling, renting and letting a property in the capital. To find out more about our services, please get in touch with our expert team today. You can find out how much your rental home could be worth on the current market by requesting a free and instant online valuation here.
We are doing all we can to help our clients through this crisis, using our experience and local market knowledge to put landlords in the best possible position.