Buy-to-let  

Payment holiday uncertainty may bite buy-to-let clients

Payment holiday uncertainty may bite buy-to-let clients

Buy-to-let landlords face uncertainty over whether any coronavirus-related payment holidays might affect their future mortgage applications, brokers have warned.

Adam Wells, director at Lloyd Wells Mortgages, said the lack of clarity provided by the regulator could lead to complaints if borrowers end up disadvantaged because they took a payment holiday in good faith.

Mr Wells said: “The information that was provided when the payment holidays became available was that if you take a payment holiday it will not have a negative impact on your credit file.

“If it turns out that it will impact an applicant's ability to apply for a mortgage in the future, I would expect to see complaints submitted.”

On May 19, the Financial Conduct Authority’s information for consumers on mortgages and coronavirus read: “Our guidance makes clear to firms that they should ensure that taking a payment holiday will not have a negative impact on your credit file”.

However, the page was later updated to add: “There are other ways lenders can tell whether you have taken a mortgage payment holiday, which could impact future lending decisions.

"Lenders may take into account other information when making lending decisions, including information provided by you or bank account information, for example”.

Speaking on a Mortgage Market Alliance podcast, Liz Syms, chief executive of Connect for Intermediaries, said landlords may have taken payment holidays to preserve their cash flow, in the event that their tenant would be unable to pay rent, and under earlier guidance that it would not negatively affect their credit file.

But after the FCA’s updated guidance, which said a payment holiday could impact future lending decisions, Ms Syms said in the podcast it was a “shame” that landlords who took a payment holiday to preserve cash flow could see their decision “backfire” on them.

Dominik Lipnicki, director at Your Mortgage Decisions said he did not believe lenders will be able to differentiate between borrowers that needed the payment holiday and those who took one as a precaution, due to the “sheer volume” of payment holiday applications.

The availability of three-month mortgage payment holidays, for borrowers experiencing difficulty due to coronavirus, was announced by the government on March 17.

The following day the support was extended to landlords whose tenants were experiencing financial difficulties due to coronavirus.

Figures from UK Finance show 1.82 million mortgage payment holidays had been issued as of May 20, equivalent to one in six mortgages.

Speaking to FTAdviser, Ms Syms added that the buy-to-let market could be more affected than residential, as lenders expect landlords to be able to deal with void periods where a tenant is not living in the property.

Ms Syms said this was causing some lenders to question whether landlords, who took a payment holiday, were “so tight financially” that they wouldn't be able to “cope” with a potential void period in the future after lending to them.