Calling in your mortgage

Hi Peter

I have invited Paragon to post a comment.
.

Reply to the comment left by "Mark Alexander" at "18/11/2014 - 09:33":

My thinking was that BTL mortgages were mostly all like this, not regulated the same way as a residential mortgages are. What is the experience of other landlords who have expanded their portfolios recently, are they comfortable with this risk where the lender can change the terms?

Many thanks

Reply to the comment left by "Peter Johnson" at "18/11/2014 - 12:05":

None of my BTL mortgages have clauses of this nature, hence I've asked Paragon to comment as I don't have any mortgages with them.
.

Hi,

You are right to be concerned.

Most BTL loans are long term mortgages and as long as you pay up every month and don't breach the mortgage terms, they will leave you alone.

However Commercial lenders tend to operate in a different way and if you read the terms and conditions of the loan, you will find the lender has plenty of reasons to call in the loan through no fault of yours.

For example, when the credit crunch hit, if you were unlucky enough to had an RBS commercial loan, they were using any contractual clause they could to call in loans, not because of borrower fault but because the bank was in trouble.

In my view, if you have a loan with these sort of terms written into the loan contract then it is a risk and you have to decide the impact and probability of them invoking these clauses.

Reply to the comment left by "steve sanders" at "18/11/2014 - 15:45":

Hi,

I was reading the Paragon offer again and the fact that they can change the terms of the loan is very boldly written and not placed anywhere in small print. To be honest I am really surprised that no one else has raised this as part of a discusion here as it seems mad that you take out a loan and when the lender feels like changing my loan to a repayment one they can. Also if they want to call in the loan they can also do that to without giving a reason.

Maybe Paragon are alone at doing this I guess as otherwise more Landlords here would be compalining about it, hopefully we will get a post here soon to confirm.

I have enough money currently to buy 5 to 6 properties outright so the Paragon problem does not bother me but beyound that I would be nervous.

Reply to the comment left by "Peter Johnson" at "18/11/2014 - 16:56":

If I was you I would use regular BTL lenders like TMW, BM etc until you max out on your limits. (These loans are all 'normal' terms).

Only after filling your boots with these guys is it worth looking at commercial lenders.

Also, if you are restricted to commercial lenders, then spread your risk by splitting your business among several lenders. So if you have 1 loan with Paragon, perhaps do the next one with Handelsbanken, Metro, Aldermore commercial etc, but do spread your risk.

If you have these sort of terms written into your mortgage contract then you have to keep an eye out for the banks general health. For example, I wouldn't want a large chunk of debt with Handelsbanken right now.The Swedish Central bank reduced interest rates there too zero percent because they are worried about deflation in the Swedish economy. Generally if a country isn't doing to well, then their companies tend to retract a little from their foreign operations. Could this mean they have to call in loans? Who knows. Its too much to worry about, so don't have too many with any one commercial lender and keep LTV's at 60% so that if you are given 90 days notice to take a hike, you can do so without too much stress

Hi ,

My impression was that Paragon is a regular BTL lender, they are quite dominant in the market place which is why I am surprised that no one has come forward as yet with any comments about this. Lets see, maybe someone else is out there with paragon and got the same terms as me?

I appreciate your helpful pointers and will try to keep LTV to 60%, I prefer less stress where possible.

Cheers

Paragon own The Mortgage Trust. TMT are their vanilla BTL arm which will do upto 5 properties for borrowers whose main income is not BTL. Anything else is through Paragon which is more commercial. (I am not a broker. This is just my understanding as a borrower)

You should count yourself lucky that Paragon had the grace to highlight these terms, I have a BTL with West Brom and they just went ahead and arbitrarily changed their terms regardless.

Reply to the comment left by "Onslow Clough" at "20/11/2014 - 17:56":

Indeed Onslow, and to my knowledge PRagon have never called in loans or amended terms unless a borrower was in default. They are the only BTL lender I know of that made a profit throughout the credit crunch and didn't call on government support or a bail out from a competitor. Furthermore, they had the sense to close down new lending for a few years when the credit crunch was at its worst and to come back strong when the time was right. Clearly they've come a long way since the recession of the late 80's and early 90's when they were believed to be on the verge of collapse.

As a broker we moaned about how strict the PRagon lending policies were at the time when MX, GMAC, CHL Nd N/Rock were throwing money around, but with the benefit of hindsight they were right and I have to commend them for that.
.