The accidental landlord: problems with buy-to-let mortgages and welfare benefits

The accidental landlord bemoans Dickensian buy-to-let mortgage deals that prevent landlords from letting to people on benefits.
£650 a week: at Embankment Gardens, Chelsea, a spacious and bright one-bedroom flat to rent, with spectacular river and Chelsea Physic Garden views

Like many buy-to-let mortgages, mine strictly forbids me to let to tenants on benefits. It sounds ridiculously 19th century and quite honestly I am surprised companies can get away with this sort of discrimination these days, but it is actually pretty common.

A while ago I approached my mortgage lender to find out if it would waive this Dickensian clause so that I could make my property available for social housing. The lender said it would consider doing so, but I would have to apply in writing, there would be an administration fee and the interest rate on the loan might be increased. I decided not to bother and continued letting to private tenants instead.

So picture my alarm when one of my tenants told me she had put in a claim for housing benefit and she needed me to write a letter to the local council confirming her rent. I was previously unaware that she had lost her job and had been struggling to pay for her little room and of course I wanted to help her out, especially as she has always been a good tenant and paid on time, but I was worried about the effect on my mortgage.

If I told my lender I had a tenant on benefits, might it expect me to turf her out on the streets? Heavens above, given the shortage of accommodation available for the unemployed I was seriously worried she might become homeless and end up begging at my local Tube station. Imagine the guilt I would feel as I stepped over her every day on my way to work. However, what if I didn't tell my lender, if I metaphorically stuffed my fingers in my ears and pretended I was unaware of my tenant's change in circumstances? I was fairly sure the lender would never find out, but what if it did? I would be in breach of my mortgage, which might be withdrawn, I could lose my rental property and then my kids and I would also end up on the streets.

I know - I am a drama queen. But I find it is always best to consider the worst case scenario. I was also concerned about my landlord insurance. The policy, which covers the contents of the property and provides me with public liability insurance, also states that the place must be let to "professional" tenants - in other words, not tenants on benefits.

By not informing the broker that my tenant was no longer working, and was claiming local housing allowance and income support, I could invalidate the policy. In the (admittedly unlikely) event that the flat burned to the ground or was damaged in a flood, the insurance company could use my nondisclosure as an excuse to wriggle out of covering my loss.

In the end I decided it was best to 'fess up to both the mortgage lender and the insurance broker and see what happened. To my surprise, they were both totally fine with the situation. My insurance premium wasn't affected and my mortgage lender said it was "not concerned" that I had accidentally ended up with a tenant on benefits. The saga proved, however, that it is important to have a six-month break clause in all new lease agreements so that if a tenant's circumstances change, you have the option of ending the tenancy early. I'm not saying you should rush to evict anyone who falls on hard times — I like to think most landlords would try their best to avoid that — but if their mortgage lenders are less flexible than mine, they might not have any choice.

* Victoria Whitlock lets three properties in south London. To contact Victoria with your ideas and views, tweet @vicwhitlock.


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