Arranging social housing mortgages for landlords who supply homes to housing providers is a much under-served area of the buy-to-let (BTL) mortgage market.
Those who do take up the challenge say it’s not only rewarding to see vulnerable tenants move into a safe home, but they’re inundated with leads as word quickly spreads among housing providers and landlords desperate for a broker.
To find out more about broking social housing BTL mortgages, Mortgage Solutions interviewed expert Nick Louis, property finance specialist at Signature Funding Solutions.
How did the Signature team get started in social housing mortgages?
Our managing director Dean, who’s also a landlord, was refurbishing an eight-bed house in multiple occupation (HMO) and was approached by a housing provider asking if it could take his property over. Dean said yes and started to investigate how he’d get a mortgage. He quickly found out it was much more difficult than it needed to be.
We managed to arrange the mortgage and afterwards, as it often happens in property, we talked to people in the industry about what we’d done and it spread like wildfire.
Apart from one or two articles we’ve written on our website, we don’t really advertise it and yet we’re inundated with business. Around 80% of the leads we now get are for supported living mortgages and we can’t process them quick enough.
How do you arrange a social housing mortgage?
Although it’s referred to as a supported living or a social housing mortgage, an actual product doesn’t exist. It’s more a grey area in a lender’s criteria.
There’s two ways you can go about it; the BTL route, which has two layers of lending criteria you’ll need to get through, or the commercial mortgage route.
If you’re choosing BTL, you need to find a lender who’ll accept a corporate let agreement. Once you’ve done that, you’ll need to check that, within the acceptance of the corporate let agreement, the lender is also comfortable with vulnerable tenants living in the property.
For the commercial mortgage route, you’ll also need to find out if they allow vulnerable tenants, but this tends to be on the scale of a children’s care home, for example.
What sort of agreement does a landlord need from the provider?
The landlord will sign a legal contract with the housing provider to lease their property to them usually for around five years. During that time, the provider will look after that property come rain or shine. They are generally Full Repairing and Insuring (FRI) leases, which means the provider is responsible for all repairs and buildings insurance. The terms of each lease will differ depending on the housing provider, so every landlord must take legal advice.
The lease guarantees that the provider will pay the landlord a fixed monthly rent for the term. Supported living rents are slightly less than an AST rent, but you have the guarantee of the rent being paid by the housing provider for five years.
Do many lenders serve the market?
That depends on the level of care or support the tenant needs.
For a BTL mortgage, there are three unofficial tiers that we’ve come up with internally that will determine how many lenders you’ve got to choose from.
If the tenant just has a housing need, rather than a care need, then that’s the most basic level of supported living mortgage and the most well-served, with around 13 lenders offering deals.
If they have some care needs – for example, some assistance with daily living – your choice drops down to around eight lenders. If tenants need 24-hour care involving carers on a rota or who live in, you’re only looking at around four lenders.
Why don’t lenders want to support tenants with the highest level of care needs?
That’s the burning question that no-one’s answered, particularly when there’s an FRI lease in place. If there is a 24-hour care need, that means someone is in the house 24 hours per day looking after the property. Surely that’s less risk than an HMO full of students.
A lot of lenders say there’s a reputational risk should they need to repossess.
Can brokers earn more money arranging this finance?
No, it’s the same and involves more intense work up front for the broker right to the valuation as they try to get the lender to be comfortable with the lease.
So why do we do it? It comes down to social conscience. There’s a real problem in housing, especially for vulnerable people. Every so often we get to meet the vulnerable people we help to house through landlords, which is quite rewarding.
But if you’re purely looking at this from a business point of view, we do retain almost a 100% of clients we have for supported living. We go on the journey with the landlord to getting the mortgage, which can be extremely stressful due to all the pitfalls.
How can brokers find out more?
Every single time we speak to a business development manager (BDM), our first questions are always, “do you know what supported living mortgages are, do you offer them and what does it look like if we send you cases?” That’s how we’ve built up our knowledge.
At the National Association of Commercial Finance Brokers’ (NACFB’s) annual conference in Birmingham, I go to every stand and ask every lender if they support this market to try to find more lenders that we’ve yet to speak to.
Brokers should also visit Lisa Brown’s Supported Living Property Network, which helps landlords, providers and local authorities link together. There are lots of free resources on there that can help brokers take the next step.
Samantha Partington is a freelance trade and consumer journalist writing about property and personal finance. Previously she worked worked for the Daily Mail and Property Week. She is the former deputy editor of Mortgage Solutions and editor of Specialist Lending Solutions.
Before becoming a journalist, Samantha worked as a mortgage broker and latterly for a mortgage, bridging and secured loan lender. Samantha is CeMAP qualified. Follow her on Twitter @SamJPartington1.
