NatWest has lifted all restrictions on its buy-to-let customers renting to tenants in receipt of housing benefits, following pressure from charities and trade bodies to change the policy.
The bank faced controversy last year when one landlord claimed NatWest revoked her buy-to-let mortgage when it discovered she rented to a benefit claimant.
Helena McAleer, a landlord from Northern Ireland, contacted the bank to discuss releasing equity from her property - but instead Ms McAleer claims the lender revoked her mortgage citing its policy prevented rentals to benefit claimants.
At the time NatWest’s buy-to-let eligibility criteria read: "We will not consider multiple tenancies, Homes of Multiple Occupancy, bedsits, DSS tenants or 'Related Person' tenancies."
A campaign for change gained widespread support, with the Residential Landlords Association calling on the government to use its influence as a shareholder in certain banks to end the "discriminatory" practices.
In 2017 research by the RLA found 66 per cent of lenders representing 90 per cent of the buy-to-let market did not allow properties to be rented to tenants in receipt of housing benefit.
Today (March 1) NatWest announced it had lifted the renting restriction with immediate effect, following an "extensive review" of its buy-to-let policies.
Ian McLaughlin, managing director of home buying and ownership at NatWest, said: "I am pleased that we are introducing these changes and extending our policy to support smaller landlords in this segment of the market.
"We would like to thank Shelter and the RLA for their thoughtful and thorough contributions to the review, to help us better understand the market in this area, and bring our policies in line with those in our commercial segment."
John Stewart, policy manager for the RLA, said the group "warmly welcomes" NatWest’s change of policy.
He said: "Around 20 per cent of all private sector tenants are in receipt of benefits and we need to do all we can to support them to find the homes they need.
"NatWest’s decision will make it easier for landlords to rent to benefit claimants, and agree long term tenancies where suitable. We urge other lenders to follow this lead."
The bank’s changes will affect new and existing landlords with fewer than ten properties and apply to all UK brands within the RBS Group.
NatWest has also extended the maximum length of assured shorthold tenancy from 12 months to 36 months, a move it said will allow landlords to offer tenants the security of longer tenancies.