Portfolio mortgages pros and cons

Hi Terry,

The Mortgage Works had a very popular portfolio product pre credit crunch.

It allowed the flexibility of spreading the equity of multiple properties over one loan so that you could use the overall LTV to your advantage on a new purchase or equity release.

However when prices fell post crunch and criteria got stricter it often became harder and less flexible to manage. Eg if you want to sell one property but it drops the portfolio overall below the maximum LTV you end up with issues.

Beware the lender's right of consolidation. If you have two or more mortgages over different properties, the mortgagee will almost certainly be entitled to consolidate them. This means that you cannot redeem one mortgage without redeeming all of them. Whilst the relationship with your lender remains good and the lender is happy to continue to lend you will probably not notice that every property is effectively security for the whole loan.

Where you can get into trouble is if the mortgagee wants to stop lending (as Mortgage Express did and do). Where the lender is entitled to consolidate (you should assume they can do so) then the lender can refuse to release any property from charge unless all loans are redeemed. This could prevent you from selling or re-mortgaging a property. Even if you agree to pay back substantially more than the amount borrowed on a particular property the lender can refuse to release that property unless all debt is repaid. This could mean you are stuck with expensive debt or are unable to release equity by re-mortgaging. The lender can take this line even if, viewed objectively, the LTV is improved by a partial redemption.

Terry,

Don't do it. I had one with TMW and wanted to sell one of the two properties. TMW staff did not know their own process. They did not follow it and as a consequence I had a legal bill of £2000 more than normal to deal with the hassle. I was only awarded some £700 in compensation by the Ombudsman. The matter of compensation took 2 years to resolve. The valuations which were undertaken as 'drive bys' were incompetent. They compared a 3 bed listed house on a cobbled street with modern 2 bed flats some 2 miles away. The valuation showed no increase in value over 5 years whereas Zoopla showed an indexed growth of 50%. I no longer look at TMW products. They are not worth the risk, ie the cost of dealing with incompetence.

Eggs and baskets come to mind.

Much more freedom with individual loans.

I used to think it was great. Like others i had several of mine through TMW. They couldn't get their act together though. Would not go down that route again. If you fall out with the lender you are exposed. Keep your options open. Spread the risk
.

Hi Terry.

I used to think that keeping all borrowing under the one roof was a fantastic idea and I worked for a lender who was a real advocate of putting such facilities in place. At the time there wasn't a great many lenders who were offering similar facilities and as a relatively new bank we were incredibly busy and the demand for such a facility was high.

Clients loved the fact that it was so easy to manage their finances compared to how it was before. Only one loan, only one facility agreement, only one D/D etc. Another advantage was that facilities were offered across the value of the portfolio. That meant although there may have been some property at 85%+ LTV and some at say 30% LTV they could have perhaps 70% across the board.

As has already been mentioned this was fantastic while the Status Quo remained. But it didn't.

With the introduction of Basle III the pricing and structure of these facilities came under increasing scrutiny and for Banks to offer such facilities became very expensive at high LTV`s. As a result we began to reduce the amount we could offer across a portfolio from 70% to 65% to 60% and further

In real terms this saw clients with entire portfolios secured with one bank seeing their agreed facilities being eroded. Clients who were attracted to and benefited from the single portfolio facility suddenly being unable to move their business forward as they had planned. In some instances they had smaller facilities overall than when they first joined.

If we have learned anything in the last 5-10 years its that Banks/Lenders change their terms, move the goalposts, dip in and out of certain areas of the market. The only certainty is uncertainty.

Its one of the oldest sayings I know, the "Dont put all your eggs in one basket". With property it really is true. Products will come and go, lenders will be keen on a sector and then back away. As long as you spread your risk, hedge your bets or whatever you want to call it you should be OK.

If you risk everything on the one horse and it doesn't win thats trouble. Back a couple of horses each way and suddenly watching that race becomes far less stressful!

Mark Alefounder
HD Consultants
07716647928

If properties are held in a property investment company, is it possible to have a mortgage for each property, or would it have to be portfolio mortgage?

I have a portfolio with TWM worse thing I ever done. Their valuations were 20% below market on portfolio when I wished to release a property, difficult to deal with. Would love to be rid of it never again.

Reply to the comment left by "Hassan Awada" at "23/02/2016 - 12:09":

Hi Hassan
If the properties are brought into charge at different times there will be separate legal charges for each group of properties brought into charge at the same time. The charges may be framed by reference to a master charge agreement. The lender may also ask for a debenture over the company. However, as explained in my earlier post even if there are separate charges the lender can consolidate them.

Ha ha again Yes Jonathon.
Why do u always speak for me?

Yes, I too would think great & years ago, had several under one umbrella.
But it ain't great, unless one lender doing u cracking rate fall properties.
I along with others have found out, just get the best deal at the time for that house.

Along with all the other problems mentioned above, avoid the ruddy thing.