More flexible approach needed to help landlords with ‘credit blips’

Claire Askham, head of mortgage sales at Buckinghamshire Building Society, discusses the rising number of landlords with adverse credit and what products are available in the market for advisers and their buy-to-let clients.

Related topics:  Blogs,  Mortgages,  Buy-to-let
Claire Askham | Buckinghamshire Building Society
8th July 2024
Claire Askham Buckinghamshire
"Some landlords have found themselves stuck on mortgages they can’t afford because the ICR is no longer enough to meet the criteria of a new deal."

There’s no denying that mortgage cases have increased in complexity due to the various economic challenges the market has experienced in recent years, and lenders have had to review their product ranges to reflect that.

More people are struggling financially and it’s required us all to take an increasingly flexible approach in order to keep the market moving.

This squeeze has impacted landlords as well. We’re seeing more broker enquiries coming in for buy-to-let cases where there’s a less than perfect credit history, or a credit blip.

Data from sourcing systems tells us the same, with more illustrations being produced for buy-to-let mortgages with adverse credit. According to one system’s reports, these made up 45% of all buy-to-let mortgage illustrations produced in March this year, compared to 41% in March 2023.

There are also increasing numbers of buy-to-let mortgages in arrears. UK Finance data shows 13,750 were in arrears greater than 2.5% of the outstanding balance at the end of 2023. While only a small percentage of buy-to-let mortgages overall, this is still 124% higher than the same quarter of 2022. It also mirrors the general picture that we’re seeing of more adverse credit cases among landlords.

The cost of living crisis and higher interest rate environment is impacting everyone, so it’s not exactly a surprise that credit histories are being impacted.

Some landlords have found themselves stuck on mortgages they can’t afford because the ICR is no longer enough to meet the criteria of a new deal. Hopefully we will see this situation improve as rates continue to come down, but there are already those who have missed the odd mortgage payment, or credit card payment as they try to keep on top of the bills.

Landlords are also at the mercy of tenants who are experiencing the same financial troubles. It could be a tenant that has caused the credit issue if they failed to pay a utility bill on the property. Even a small missed payment here or there can impact a landlord’s chances of securing a new mortgage.

It’s situations like these where that additional flexibility is needed. It’s why we’ve launched a new non-standard credit buy-to-let mortgage with a three-year discount on a maximum loan of £500,000 and up to 75% LTV.

Previously, landlords had to fit our standard criteria, which didn’t allow for any missed payments. While it’s a new area of lending for us, we felt this gap had to be filled in order to help landlords through this period of instability.

We can now offer more flexibility around things like missed payments on secured and unsecured loans, defaults, CCJs, mortgage arrears and payday loans, as well as missed utility payments.

The buy-to-let non standard credit three-year discount and a similar desktop option are open to applications from both individual landlords and limited companies with a maximum of three buy-to-let mortgaged properties. It’s also available for regulated and consumer buy-to-let properties.

We want to make mortgages accessible to more people, and while this increases the options available to landlords, it can be very difficult to compare products for adverse credit cases. Every lender has their own credit matrix and their own very specific criteria, which is why the role of the broker is so important.

As well as designing products to reflect what’s happening in the market, we also have a bespoke, manual approach to underwriting. By combining these approaches, and working closely with advisers, we can better reflect the circumstances of individual applicants, with the overall aim of helping more people secure a mortgage, despite wider economic and financial challenges.

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