Santander to review 'misunderstood' buy-to-let clause that demands landlords hike rents

According to the bank's terms and conditions, landlords are contractually obliged, during the course of the mortgage term, to get written advice from qualified valuers as to whether the market rental value is higher than the rent being received from tenants.

The relevant clause in the contract, which has been in place since 2011, states: "If the valuer advises that the market rent at the date of review is likely to be higher than the current rent, you will take all steps to ensure that the review takes place and leads to the maximum increase in rent which can reasonably be achieved."

However, a spokesperson for Santander told MoneySavingExpert.com the clause is now under review and admitted it was possible for the intentions behind the clause to be "misunderstood".

We contacted four other major lenders to check whether the practice of including a buy-to-let mortgage clause calling for landlords to continue to hike rents when possible was standard industry practice. Lloyds, Barclays, Royal Bank of Scotland (RBS) and Virgin Money all denied they use a similar clause.

For more information on your rights as a tenant you can check out our Renting a Property guide.

So can my landlord just raise my rent?

Most tenancy agreements are assured tenancies, or assured shorthold tenancies, which means you must pay the rent agreed on the contract.

The landlord can't raise your rent unless the tenancy agreement allows it. In cases where the agreement does allow the landlord to increase the rent, it should contain information about how the rent can be increased, and the amount of notice you should be given before this occurs.

Who should determine the rent?

Unlike a residential mortgage, borrowers looking for buy-to-let funding are assessed on the rental income that a property is likely to generate. Most lenders require the borrower to have a minimum of a 25% deposit and for the rent charged to be 125% of monthly interest payments – to ensure that the borrower can pay the money back.

We contacted a number of buy-to-let providers to determine whether it was an industry standard to include continuous reviews of rental charges in the terms and conditions.

Most lenders did confirm that conditions existed within their contracts determining that landlords should at least charge the rental market value of the property when the buy-to-let mortgage is originally taken out. However, it's then up to the landlord to decide if they wish to increase rents at a later date.

A spokesperson for Barclays said: "The terms of the mortgage conditions require the initial letting to be at full market rental value. The conditions are silent on whether landlords are required to increase rent at rent review to reflect an increase in market rental value.

"So while there may be an expectation that landlords would maintain rents at market value, the terms and conditions of the mortgage do not expressly require this."

A spokesperson for Virgin Money said: "Virgin Money's buy-to-let loan conditions contain no restrictions or obligations around providing updated property values or setting levels of rent at a rent review." When asked if buy-to-let customers were required to charge market value at the beginning of the contract they added that it "isn't a requirement of the contract".

RBS also confirmed it doesn't have anything in its T&Cs that dictates landlords should increase rents throughout the course of the mortgage term.

We asked Lloyds Banking Group (which runs the Lloyds, Scottish Widows, Halifax and Bank of Scotland brands) whether it includes a buy-to-let clause similar to Santander's. We'll update this article when we hear back.

What does Santander say?

A spokesperson told us: "We recommend that landlords should set their rents at a prudent level that is fair for the tenant and based on market rates, ensuring that they are able to continue to service their mortgage.

"The clause in question has formed part of our mortgage terms and conditions since we re-entered the buy-to-let market in 2011.  It forms part of our terms and conditions because it is important to us that our customers can continue to afford their loan repayments.

"It is in no one's interest for a landlord to default on a loan (including the tenant). We recognise that it is for the landlord to set a rent that both they and the tenant agree upon. As with all our products, the mortgage terms and conditions remain under constant review and we will review this particular clause now that we are aware that it can be misunderstood."