Letting to Serco & Similar organisations

We recently did a newsletter article about letting to Serco for Safe Suffolk Renters: https://safesuffolkrenters.org/ which we are sharing below.

Letting to Serco is currently a much-discussed subject, albeit not a new thing. BFS takes no political view on this, our duty remains to our clients and providing the information needed to make informed decisions.

Serco has been arranging housing and working with private landlords for many years now.  BFS felt it could be helpful to give a mortgage brokers perspective on this kind of letting.

It's crucial to understand that a standard mortgage is typically granted under the condition that the property will be occupied by the borrower and/or their immediate family or let out under a standard Assured Shorthold Tenancy (AST) agreement to private individuals. Letting to a third-party organisation like Serco, especially when the nature of the tenancy involves housing individuals with specific needs or under particular contractual arrangements, can deviate significantly from these standard, contractual conditions.

Mortgage Lender Perspectives:

1. Breach of Mortgage Terms: Most mortgage contracts contain clauses specifying how the property can be used and who can reside there. Letting to Serco, who then manage the property and house people under a separate agreement, could be seen as a breach of these contractual terms. Lenders often have concerns about the potential for increased risks associated with non-standard tenancies.

   
   

2. Perceived Increased Risk: Lenders might perceive letting to an organisation like Serco as carrying a higher risk profile compared to traditional private tenancies. These perceived risks can include:

   • Management and Maintenance: Lenders might be concerned about the management and maintenance standards of the property when overseen by a third-party organisation, potentially impacting its long-term value.

   • Tenant Turnover: The nature of Serco's contracts could lead to higher tenant turnover, which can result in void periods and/or increased wear and tear on the property.

   • Legal and Regulatory Compliance: Lenders need to ensure that the property is being used in compliance with all relevant housing laws and regulations. Non-standard letting arrangements might raise concerns in this area.

   • Impact on Property Value: In some cases, lenders might worry that a non-standard tenancy agreement could negatively affect the property's market value or its appeal to future buyers.

   • Impact on repossession in the event of non-payment: A 5 year contract with Serco could make it harder for the lender to take possession & control of the property, in the event of non-payment of the mortgage.

     
     

3. Specific Lender Policies: It's important to note that each mortgage lender will have its own specific policies regarding letting to organisations like Serco. Some lenders might have explicit clauses in their terms and conditions that prohibit such arrangements completely, or without prior consent. Others might consider it on a case-by-case basis, potentially requiring additional information or imposing specific conditions.

   
   

4. Commercial vs. Residential Use: Depending on the scale and nature of the arrangement with Serco, the lender might view the property as transitioning towards a commercial or semi-commercial use. This could necessitate a different type of mortgage altogether, such as a buy-to-let mortgage with specific terms allowing for this type of letting, or even a commercial mortgage in more extensive cases.

Potential Consequences of Not Informing the Lender:

Failing to inform your mortgage lender about your intention to let your property to Serco, or if you have already done so without their knowledge, can have significant consequences:

1. Breach of Contract: As mentioned earlier, this could constitute a breach of your mortgage terms and conditions.

2. Demand for Repayment: In the event of a breach, the lender has the right to demand immediate repayment of the outstanding mortgage balance. This could put you in a very precarious financial situation, potentially leading to repossession of the property if you are unable to repay.

3. Increased Interest Rates or Fees: Some lenders, upon discovering a breach, might impose higher interest rates or charge additional fees.

4. Refusal of Future Mortgage Applications: If your lender finds that you have acted without their consent, it could negatively impact your relationship with them and potentially affect your ability to obtain mortgages from them in the future. Other lenders might also be hesitant if they become aware of a previous breach.

Steps to Take:

If you are considering letting to Serco or any other Provider, it is important to take the following steps:

1. Review Your Mortgage Agreement: Carefully read the terms and conditions of your mortgage to understand any clauses related to letting the property and restrictions on tenancy types.

2. Provide Necessary Information: Be prepared to provide information about Serco, the nature of the tenancy agreement, and how the property will be managed, most lenders will want their legal team to review the full contract offered before they agree.

3. Seek Professional Advice: It would be beneficial to seek advice from a legal professional AND an experienced mortgage Broker who has experience with non-standard letting arrangements. They can help you understand your rights and obligations and navigate the process with your lender.

4. Be Prepared for Different Outcomes: Understand that your lender might:

   • Grant consent, possibly with specific conditions.

   • Require you to switch to a different type of mortgage product that is suitable for this type of letting.

   • Refuse consent, in which case you would need to reconsider the letting arrangement with Serco, or mortgage with a lender who will allow it.

In conclusion, while letting to Serco to provide housing can be a valuable service, it's essential for private landlords to be fully aware of the potential mortgage implications. Transparency and communication with your mortgage Broker/lender are paramount to avoid breaching your mortgage terms and facing potentially serious financial consequences. Each lender's stance will vary, so proactive engagement is the most responsible course of action. Remember, this information is for general guidance, and you should always seek specific advice from your lender or broker relevant to your specific circumstances.

Balanced Financial Services has experience arranging mortgages for those who let to councils, Charities, supported living accommodation, and other providers including Serco & Mears.  Please contact us on 01603 961618 if you would like to discuss this further.

Please note this blog is for general information purposes and does not constitute advice. Please contact a member of the BFS team to discuss your own personal circumstances