Not well known in the property investment community that as Landlords you can be prohibited in the mortgage contract to rent to certain people.
On a survey of 53 mortgage lenders, we found that 43 have a “No DSS Tenants” policy.
DSS an old abbreviation of the former “Department of Social Services”. Today this criteria would be better known as forbidding renting to people in receipt of Local Housing Allowance (LHA) or Universal Credit (UC).
With 81% of lenders forbidding renting to people in receipt of housing benefit. It’s an important metric to inform your mortgage adviser about – if that is your target market, often determined by property location.
We have also seen purchases declined, where the landlord has DSS tenants in other properties. The new lender is able to evidence this on bank statements.
Mortgages can also be declined even if you insist you won’t rent to DSS tenants, but the property surveyor thinks it’s in a Low-Income area primarily leased to DSS Tenants.
It’s a fascinating subject with The Mortgage Works in 2013 changing criteria to forbid DSS Tenants. Not before a public relations mess that made them reconsider.
It was believed to be a turning point, and more lenders will follow suit, but it has not happened, yet.
In August 2018 Housing Charity Shelter started a campaign #EndDSSDiscrimination . They set the blame at the feet of Landlords and suggest they will be prosecuting landlords who “discriminate”.
Shelter goes on to suggest that Landlords can get Mortgages & Insurance so should not forbid renting to DSS tenants. The real message being landlords should pay more to accommodate lower paying & riskier tenants.
Pay More? Given only 10 lenders of the 53 surveyed allow DSS tenants. This will limit landlord mortgage options. No longer looking at the whole of the market to get the best product for your needs and circumstances. We are already limited.
Lower Rent? LHA is based on the 30th percentile of the local market rent. In simple terms, this means that the Housing Benefit is lower than the market rent in the area. In addition to this, the calculation has been frozen for some time, the gap getting more significant.
Higher Risk? Housing Benefit is only paid with strings attached. Such as ensuring that the tenants are applying for a job or can be put on hold while any “change in circumstances” is assessed. In addition, councils can demand the landlord for repayment of rent, if it is later found the tenant should not have received it.
While Shelter continues the campaign for more landlords to accept DSS Tenants. Other campaigns, such as from Jeremy Corbyn in 2016, complain that “landlords receive £9.3 billion in housing benefits”.
On the one hand, Landlords should rent to more DSS tenants and on the other Landlords are receiving too much rent from DSS tenants.
Perhaps we’ve highlighted the risk why the trio of – Mortgage Lenders, Landlords & Letting Agents. Are not eager to house Tenants that receive rent from government subsidies. There are rules attached and given a change in government those rules can change.
The takeaway is perhaps:
- Mortgage Lending to DSS tenants is restricted.
- You can rent to DSS tenants given the right mortgage.
- There are campaigns afoot, and all this may change.