The Royal Bank of Scotland, and subsidiary NatWest, have revealed underwriters reject mortgage applications on private rented homes requiring selective licences as a matter of course.
Now, estate agents and brokers fear other lenders may follow their lead as more councils introduce licensing schemes.
The policy excludes any private rented home in the East London borough of Newham and could see swathes of university towns and cities become no-go areas for mortgages.
From January 1, every private rented home in Newham has needed a licence – and the selective licensing scheme there covers 35,000 properties that are buy-to-lets as well as HMOs.
So far, 28,500 have been registered under the scheme by private landlords.
Other councils with smaller selective licensing schemes include Leeds, Salford and Bristol.
Several other councils are allegedly watching the progress of the Newham selective licensing scheme with a view to introducing them in their areas.
Oxford also runs a city-wide licensing scheme for HMOs.
The National Landlords Association head of policy Chris Norris explained lenders fear lending on selective license properties in case they have to repossess and comply with the licence and pay extra costs.
For landlords and home owners living in selective licensing neighbourhoods, the issue could push down prices, leaving the market open to cash buyers and a limited number of lenders who will advance funds on HMOs.
Other lenders say selective licensing is not a big problem for them – and they support any initiative that raises letting property standards.
Charles Haresnape of Aldermore says the selective licensing has a positive effect and improves the quality of homes and landlords, while BM Solutions supports any scheme that enhances the quality of private rental properties.
