It claims such inexperience is likely to increase the chance of arrears and repossession.
Many lenders are relying solely on credit status reports to approve 100 per cent mortgage lending, and in the current market - with interests rates comparably low - good credit ratings and low arrears are prevalent. However, Landlord Mortgages warns that having a favourable credit rating does not by any means constitute the ability to be a ‘good’ landlord as far as financial management is concerned and should not be a judging factor.
Lee Grandin, managing director of Landlord Mortgages, said: “Lenders are potentially setting financial traps for novice landlords with 100 per cent mortgages, forcing them to hand over their entire rental income to the lender each month, leaving them open to arrears if there are problems with rent collection. Landlords should always keep a 20 per cent reserve up their sleeve, in case things go wrong.”
Reports that the Council of Mortgage Lenders have met to discuss the matter of auctioning repossessed properties point towards preparations being put in place to deal with the perceived glut of properties unable to be covered by novice landlords’ 100 per cent mortgage deals.
Grandin continued: “100 per cent mortgages should only be lent to landlords with the necessary experience; a portfolio of 25+ properties, or a portfolio worth over £5million, which should have been amassed over three years or more. To give them to people with minimal experience is short-sighted on behalf of the lender.”
