Paul Adams is sales director at Pepper Money
Buy-to-let is a market upon which a lot is written, and the consumer and trade press is frequently filled with commentary, analysis and speculation about the sector.
But one area of buy-to-let that is less well understood is lending to landlords and potential landlords who have instances of adverse credit on their credit record.
Conventional wisdom might assert that, if you are wealthy enough to own investment property, then you are unlikely to have a history of missed credit payments.
As you know, however, the dynamics around adverse credit are not that simple and that missing credit payments is not directly linked to wealth or income, but more often the result of circumstances.
At Pepper Money, we recently carried out our latest wave of research in association with YouGov amongst a representative sample of 4,094 UK adults.
As part of this research we identified a number of existing landlords who have also had adverse credit registered on their credit record within the last three years.
This was a relatively small percentage of the total sample, with between 40 and 70 respondents to each of the individual questions. In order to be considered statistically relevant, YouGov suggests that a minimum sample of 50 is required, and so we will not be issuing press releases for some of the following statistics.
However, with this caveat in mind, it is worth looking at some of the trends they raised.
For those landlords who missed one credit payment (credit card, loan, hire purchase etc) in the last three year, 13% said that the missed payment was linked to an investment property they own rather than their home address.
However, for landlords who had missed several consecutive payments on a credit card or loan agreement, which resulted in a default, 37% said that this was linked to an investment property they owned, with just 26% saying that it was linked to their home address.
Similarly, 28% of landlords with a CCJ in the last three years said that this was linked to an investment property compared to 27% who said it was registered to their home address. While 29% of landlords with unsecured arrears said that they were linked to investment property they owned, compared to 23% who said they were linked to their home address.
And when it came to landlords who have entered a Debt Management Plan (DMP) in the last three years, 34% said that this was linked to an investment property that they owned while only 14% said it was linked to their home address.
unintended consequence
Not all of this data can be considered as statistically relevant according to YouGov’s criteria because some of the sample sizes are slightly too small, but we can certainly ascertain a trend that, for some landlords, adverse credit can actually be an unintended consequence of owning investment property.
This seems to be particularly true in incidents of multiple missed payments that result in a default, CCJ or entering into a DMP, and it is possible to see how this might be the case.
A landlord who has multiple linked properties through their investment could have tenants in one of more of those properties who do not make payments on their credit agreements. The tenants might move on to a new address, and the adverse credit event is registered against their last known address, which is linked to the landlord.
This pattern of events does not apply to all landlords, of course, but it goes some way to explain why adverse credit is more common amongst landlords than you might expect. As a broker, it is therefore a sensible step to ensure that you have access to options for your buy-to-let clients who also have adverse credit.
By working with lenders that are able to take a pragmatic view on previous credit difficulties, you can deliver solutions to landlords whose profile is less than perfect.
The good news is that there are a growing number of options for landlords in these circumstances, and these options include choice for those investors who purchase property with a limited company as well as those who invest in their own name.
Another finding from the research was that, of those people who have a record of adverse credit in the last three years and intend to purchase a buy-to-let property in the next 12 months, more than a quarter (27%) said that they intend to do so using a limited company.
So, don’t be caught out by landlord clients with adverse credit who are looking for solutions to grow their portfolios. Do your research now to find out which lenders are best placed to help. You could even pick up the phone to arrange a meeting with a BDM or telephone BDM to find out more. I know that my team at Pepper Money, for example, will be more than happy to help you lift the lid on landlords with adverse credit.
