Brokers must step in as mortgage conditions still reference assured shorthold tenancies, even after the new assured periodic tenancy regime took effect
When the Renters' Rights Act came into force on 1 May, it abolished the assured shorthold tenancy (AST) in England and Wales overnight. Every existing tenancy converted automatically into an assured periodic tenancy, fixed terms disappeared, and landlords seeking possession now have to rely on the statutory grounds set out in the Housing Act 1988 rather than simply waiting out a term. For buy-to-let borrowers, the legal framework they operate under has fundamentally changed, but some of the mortgage conditions governing their loans have not.
Several major lenders have yet to update their buy-to-let documentation to reflect the new regime, leaving borrowers relying on guidance that still refers to a tenancy type that no longer exists. The pressure bearing down on the sector is already considerable, after an Allsop survey of more than 1,000 landlords published in May found 41.7% said they were unlikely or very unlikely to continue as landlords following the abolition of Section 21 evictions, a figure that rose to 51.8% among single-property landlords.
Nicholas Mendes (pictured top), mortgage technical manager and head of marketing at John Charcol, has been raising the documentation gap with brokers and argues intermediaries need to take ownership of it now.
A gap between law and lender guidance
Not every lender has dragged its feet. Barclays, Saffron Building Society, and Nationwide have all published updated guidance confirming a periodic tenancy under the new regime satisfies their mortgage conditions. But others have been slower to act. Lloyds Bank's customer-facing buy-to-let guidance, for instance, still opens with language built around the AST, with only a passing reference further down to tenancies that may be prescribed by legislation, hardly enough for a borrower reading it plainly to understand where they stand.
Mendes is direct about where he believes the bigger names should be. "You would have thought Lloyds, BM Solutions and so on would have been a little bit quicker to the mark," he told Mortgage Introducer.
He acknowledged there is no simple explanation for why some large lenders have been slow while others have moved. "It's hard to say honestly. We've seen people like Barclays, we've seen equally large lenders making those changes. Often what you might find, especially with some of these larger lenders, is the bureaucracy that goes on behind in the background in terms of making changes and getting it signed off and then getting it updated. And sometimes the other part is whoever's in those relevant departments about being made aware of those changes."
Drawing on his own experience inside a major bank, he added: "I've worked at Lloyds historically, a long time ago, and you've got so many different parties within the mechanics of it, and sometimes it could get lost in translation between so many people and who's responsible for it."
What brokers need to do
The more immediate problem is not whether borrowers are technically in breach – most will not be – but whether they understand what their mortgage conditions actually mean under the new law. As brokers brace for the buy-to-let reckoning on the wider implications of the Act, Mendes said closing this knowledge gap is now part of the broker's job.
"It's just really to make sure that as brokers it's our position where we're talking through it – how you build that trust, and how you build that repeat business from a client is by making them aware of what it should say rather than a lender not getting around to it in a certain period of time," he said.
Smaller landlords are particularly exposed. Many of those with one or two properties have not been following the detail of the regulatory changes closely, and some will not realise their broker needs to walk them through what their offer documents now mean in practice. "The landlords that might have one or two properties that have essentially gone into the game just to look at it as their pension later on, they don't really keep in touch with all the changes happening in the regulation," Mendes said. A survey by Landlord Today in February found that while 84% of landlords were aware fixed-term tenancies were being replaced, 69% had no plans to change their processes ahead of May.
With compliance costs mounting for landlords adapting to the new rules, Mendes said brokers cannot afford to gloss over documentation when going through illustrations and offer letters with clients. "As brokers, when we're having those conversations and going through things like the illustrations and things on the offers, they need to be aware of what they're describing, what they're talking to a client about, because it's very easy to just gloss over it or just read over it," he said.
How do brokers push this forward?
On what brokers can practically do to drive lenders toward updating their terms, Mendes pointed to direct escalation through business development manager (BDM) contacts. "It's just sort of pushing back on the BDM or pushing back on the lender, and depending on what it's like internally and who it goes forward to, some of these lenders are so large and have so many departments," he said.
With the buy-to-let market already navigating wider political uncertainty, Mendes said the case for brokers pressing lenders on outdated documentation is straightforward. "It's more around brokers having those conversations to make sure clients understand – in the event of a possession situation – what it means."
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