Are banks behind your latest rent rise?

This morning, Mortgage Strategy magazine and the Daily Telegraph reported that Santander is requiring its buy-to-let borrowers to raise the rent on their tenants as high as possible.

The bank even demands that landlords get a valuation of the market rent every time the tenancy is up for renewal and then "take all steps to ensure that the review [with the tenant] takes place and leads to the maximum increase in the rent which can reasonably be achieved."

Many landlords and letting agents already do this of course, but a significant number - we believe at least half - just don't raise rent on sitting tenants. Landlords tend to value reliable tenants, reward good care of their property and won't give them a reason to move out. Santander's conditions appear to tie the hands of landlords who want to treat their customers right, and promote the churning of tenancies, thereby destabilising tenants' lives.

In its response, Santander said: "we feel there is plenty of discretion for the landlord to set a rent that they and the tenant agree, and no direct obligation imposed by us that the rent should be the maximum possible." You'd be forgiven for thinking otherwise though.

Of course, we want all renters to enjoy the stable rents that the majority pay, and the certainty that would bring over their finances - read more about our proposals here.

Until we get those protections, renters have to stand ready to negotiate every time they renew their tenancy. We have a guide on doing this here.

Or, as the Council of Mortgage Lenders pointed out on their blog last month, tenants can ask their landlord for a longer tenancy in the knowledge that their lender isn't going to say no. The post was a rebuttal of claims made by MPs that lenders are an obstacle to longer tenancies.

The lesson we can take from today's story is that if your landlord tries to blame their mortgage lender on raising your rent, show them Santander's comment - and keep negotiating.

UPDATE - 3rd February:

Santander has now confirmed via Twitter that they will be reviewing the offending clause:

Hi, we recommend that landlords should set their rents at a prudent level that is fair for the tenant and based on market rates, ensuring that they are able to continue to service their mortgage. The clause in question has formed part of our mortgage terms and conditions since we re-entered the buy-to-let market in 2011. It forms part of our terms and conditions because it is important to us that our customers can continue to afford their loan repayments. It is in no-one’s interest for a landlord to default on a loan (including the tenant). We recognise that it is for the landlord to set a rent that both they and the tenant agree upon. As with all our products, the mortgage terms and conditions remain under constant review and we will review this particular clause now that we are aware that it can be misunderstood.

UPDATE - 20th February:

After a series of protests against Santander's rent clause were planned by Acorn and Living Rent for Saturday the 18th, the bank confirmed that it will be dropping the clause, telling Acorn:

We have never invoked the clause and having reviewed the wording, we are in the process of removing it from our terms and conditions.

Will they send their existing borrowers a clarification though?

Showing 2 reactions

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  • commented 2017-02-02 12:52:36 +0000
    @notabad landlord: Thanks for your comment. As Santander states in the article, this policy has been in place since 2011, so it’s unconnected to the government’s Clause 24 changes.

    One purpose of the tax changes is to deter landlords from taking on too much debt, and banks are quite fairly asking new BTL borrowers for a higher rent-to-interest payment ratio in response. If the market isn’t going to let a landlord let for a high enough rent to meet the lending criteria, he won’t buy the property in the first place. The price will then fall until either a landlord can make it work, or a renter buys it. As long as that initial rent will cover the mortgage plus extra in case of rates going up, the bank should have no interest in what future rent rises are.

    The property market is overheating as it is, and increases the risk of financial instability should the bubble pop. It is better for the government to target the source of that instability – debt-fuelled speculation – than leave it to the Bank of England and let an interest rate rise spark another crash that affects the whole economy.

    Instead of raising rent on their tenants, landlords ought to reduce their tax bill by paying down their debt.
  • commented 2017-02-01 18:01:07 +0000
    All banks will follow suit (Most have already). The CML (Council of Mortgage Lenders) are forcing banks to apply stronger/more strict affordability requirements on Buy-To-Let mortgages. The stricter requirements are directly caused by the Government applying “Clause 24/Tenant Tax” restrictions on landlord income.

    The result: Landlords won’t see any of the increased rent, as it will go to Government as tax. Landlords that are otherwise really happy with their long-term tenants, are forced to (1) raise rents, (2) evict their tenants, or (3) take a real loss, wait for the banks to repossess the house and evict the tenants.

    In my experience, rather more than half of landlords don’t raise rent on sitting tenants; We value longer-term tenants because they make the house a home, and from a business perspective this means more stable rent/no void periods.

    I would direct you to the “Tenant Tax” info website at http://www.tenanttax.co.uk/ to read more about the long-term implications of the Government’s Tenant Tax.