Buy-to-letNov 17 2017

Lenders strike brokers off panels over holiday lets

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Lenders strike brokers off panels over holiday lets

Mortgage brokers have been warned they could be kicked off lenders’ panels if their clients use their buy-to-let properties as holiday lets.

Advisers have been urged to ensure they provide clear guidance about the terms of buy-to-let mortgages or risk being a party to fraud, as many loans come with terms preventing clients from using their property as a holiday let.

The warning comes after a boom in the holiday rental market as millions of Britons opt for a ‘staycation’ instead of travelling abroad, along with the rise of websites such as Airbnb, which make it easier to let residential properties on a short-term basis.

An analysis by Second Estates, a holiday property management company, revealed average income per booking was up 6.4 per cent in the first four months of 2017, with holiday properties generating double the annual income of residential buy-to-let.

But major lenders have confirmed brokers could be kicked off their panels if their clients are found to be in breach of the contract.

A spokesperson for Yorkshire Building Society told FTAdviser that if they found several cases where a breach of contract has occurred, they would conduct an investigation and possibly remove the broker from the panel if they had been a party to the arrangements.

An Aldermore spokesperson said: “If a broker was seen to be complicit in deceit from the outside, then [removal] is possible. Breaches of terms would be looked at on a case by case basis.”

A TSB spokesperson said: “We expect the brokers on our panel to behave professionally and with integrity. Knowingly making false representation of an application undermines this and would risk ejection from our panel.”

The tax squeeze on the buy-to-let sector has made holiday lets an attractive option for landlords in certain parts of the country.

But most lenders will not allow buy-to-let properties to be used for holiday lets, as they require an assured shorthold tenancy agreement to be in place, meaning borrowers need to refinance before a change of use.

Andy Elley, head of commercial mortgages at Mortgages for Business, said a number of landlords had been caught out breaching their mortgage terms by using their properties as holiday lets.

He explained: “Often, the lender finds out because there has been noise complaint or they've checked the holiday letting sites such as AirBNB and Trip Advisor and discovered the property is listed.”

Liz Syms, chief executive at London-based Connect Mortgages, said the firm had seen an increasse in holiday let applications.

She said: “One of the reasons why we have seen them become a little bit more attractive is they do sit outside the recent [buy-to-let] changes. It is defined by the government’s own website that someone purchasing a holiday let in an individual name can still get full tax relief on mortgage interest.

“We are seeing more lenders come into the holiday let market."

In July, Brightstar launched a product, The Temporary Letter, that is designed for landlords who wish to let their investment property on a short-term basis via websites such as AirBnB.

Rob Jupp, chief executive at the Essex-based firm, said: “Five to six years ago, 670 advisers were struck off for abuses of the back book.

"AirBNB is such a new bit of technology, and it is my opinion that many intermediaries in the UK are unaware of the serious implications they are getting involved in over allowing customers to do AirBNB lets on traditional buy-to-let mortgages.”

He explained that many intermediaries were permanently removed from lenders’ panels when their clients were found to be renting out properties with a residential mortgage as buy-to-lets – and that can put brokers out of business.

Many lenders operate post-completion checks that enable them to determine whether or not a property is being used for the right purposes.

Ms Syms said brokers who are complicit in the misuse of buy-to-let properties “should not be in the marketplace full stop”.

She said: “I have always been a great believer in the right mortgage for the right purpose. If a client said to me I am planning to do holiday let business I would say you have to have a let mortgage, then.

“You should not be involved in any way, shape or form with a client who has an intention to use it in a different way, otherwise you do open yourself up.”

simon.allin@ft.com