The work and pensions select committee (WPSC) published correspondence with NatWest chief executive Ross McEwan regarding the case of landlord Helena McAleer, first published by Mortgage Solutions.
She was refused a remortgage by the lender because her tenant was in receipt of welfare support.
The committee said it is “deeply concerned” about mortgage providers preventing landlords from renting to benefit claimants.
The situation is exacerbated by the “desperate shortage of affordable housing and the large numbers of claimants now dependant on the private rented sector”, the WPSC added.
Chair of the committee MP Frank Field said by operating ‘no DSS’ policies banks have returned to the “wicked old days of housing discrimination”.
He added that under these criteria claimants are effectively “blacklisted for housing and at risk of being senselessly evicted for no greater crime than receiving housing benefit”.
McEwan told the committee of the bank’s “extreme disappointment” with the way the case was handled, claiming it “did not reflect the values of [the] organisation”.
However, the bank chief added that the policy reflects “evidence that rental arrears are much greater in this segment of the market and we are satisfied that this restriction does not contravene equality legislation”.
NatWest has promised to review its policies.
Field added: “NatWest is now taking a look at its policy, and other mortgage lenders will no doubt follow suit.
“If the change we need to protect people is not forthcoming voluntarily, we may need to look to regulation.”
Following her experience with NatWest, McAleer started a petition calling on the government to ban buy-to-let lenders from discriminating against tenants on welfare.