The policy change will apply from today to new and existing customers and cover all UK brands within the Royal Bank of Scotland (RBS) group, including RBS and Ulster Bank.
The block on tenants receiving benefits was highlighted by McAleer who was told by NatWest to either remortgage with another lender or evict her vulnerable tenant claiming benefits.
The national outcry, which included protests at branches, caused NatWest to undertake “an extensive review” of its buy-to-let policies “to better understand the market and challenges that landlords and their tenants face.”
And the lender has now formally backed-down after completing the three-month long review.
The changes will affect new and existing landlords with fewer than ten properties, bringing the policy in line with the one for commercial buy-to-let customers who have more than 10 properties.
The bank has also decided to extend the maximum length of time of assured shorthold tenancy from 12 months to 36 months, which allows landlords to offer tenants the security of longer tenancies.
NatWest said it will be communicating with existing customers to update them on the amendments, as well as updating websites and other customer-facing channels.
Other lenders take action
Minister for housing and homelessness Heather Wheeler said the announcement by NatWest would help open up the private rented sector to people who need it most and she encouraged other mortgage providers to take similar action.
“I want everyone to have the security, dignity and opportunities they need to build a better life – at the heart of which is ensuring everyone can find a safe and secure home to call their own,” she said.
The government has also moved to tackle “No DSS” advertisements for tenants.
One in five receiving benefits
The Residential Landlords Association (RLA) assisted NatWest with its review and said it “warmly welcomed” the changes.
Policy manager John Stewart said: “Around 20 per cent of all private sector tenants are in receipt of benefits and we need to do all we can to support them to find the homes they need.
“NatWest’s decision will make it easier for landlords to rent to benefit claimants, and agree long term tenancies where suitable. We urge other lenders to follow this lead.”
NatWest managing director of home buying and ownership Ian McLaughlin, said: “I am pleased we are introducing these changes and extending our policy to support smaller landlords in this segment of the market.”
He thanked the RLA and Shelter who also supported the review.
Nationwide Building Society added its voice to those believing banning tenants on benefits was unfair and called for other lenders to join it.
Nationwide director of home proposition Paul Wootton said: “Everyone should be able to access a safe and secure home suitable for their needs.
“The continued presence of ‘no DSS’ restrictions in the private rented sector is unfair and denies this right to a significant group of people.
“Nationwide does not put this type of restriction in its buy to let mortgages and we urge others – lenders, agents and landlords – to act now to change this outdated practice.”