Unfavourable mortgage terms and conditions

by Readers Question

13:46 PM, 6th June 2016
About 2 years ago

Unfavourable mortgage terms and conditions

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Unfavourable mortgage terms and conditions

During the last few weeks I have been in the process of arranging one remortgage and one mortgage for my BTL that comes of a fixed rate and I have discovered that some of the lenders have terms that are simply unfair. unfair

The main ones are that they can at their will ask for the loan to be repaid whenever they wish during the term of the loan or they can if they wish revert to the original LTV amounts to when the loan was started (assuming prices have dropped on properties) or they can ask for the loan to be changed to a repayment loan if it was interest only. The lenders whose terms have these clauses are Godiva and Birmingham midshires in their 5 year fixed rates.

What my question was is that something all lenders are now doing or can anyone point me in the direction of a lender that does not have these 3 horrible clauses.

My broker (who are a main stream large BTL broker) is not very helpful as he feels that these terms are never going to be used by the lender and that I should worry less and just ignore them as all of his clients do just that.

Any advice would be greatly appreciated.

Many thanks

Peter



Comments

Howard Reuben CeMap CeRER

14:09 PM, 6th June 2016
About 2 years ago

Hi Peter

These conditions have been integrated in to mortgage Offers for as long as I remember. I think they are there as a fallback position in the event the world implodes and the banks need their monies back, but over the many years I have been a Broker I can't think of any mass market implementation of such rules. Of course WBBS, BOI and MX come to mind but they were extreme circumstances from a different bygone age

I understand your concern, however I would personally not be at all worried because today's banks and BTL lenders are far more robust, the legislation has changed (as has the regulator, the FSA is no more and they are now supervised by the PRA) and the lending criteria and stricter affordability rules seem to have kept the mortgage market in check.

That's not to say that any one of a million possible external influences might not occur and impact upon mortgage products in the future, but I do think that those clauses are the least of anyones concern, whereas interest rates, fees and charges for those products should be more of a focus for the property investor.

Whiteskifreak Surrey

9:06 AM, 7th June 2016
About 2 years ago

We are just remortgaging to Godiva 5yrs fixed rate. Their lawyers, Shakespeare Martineau are acting on their behalf. We were obliged to give details of our tenants (over 17 years old) living in the property (they even asked for the dates of birth which we have not provided!). They have written to each one separately (ridiculous, they are a family) asking to sign a declaration (we have not seen that). It is something to do with their interest in the property (which they have none). This is a condition of the mortgage - they must sign and return that piece of paper. This is not the first time we remortgage and we have never experienced that before. One can imagine that if the relationship with the tenants have gone sour, you are effectively cut off that deal, as the tenants might refuse.
Has anyone seen that before? Especially those who remortgage to Godiva?
Thank you.

Denise G

9:16 AM, 7th June 2016
About 2 years ago

We are in mid sale of what is now a vacant property and were sent a similar form by our buyers solicitor for our former tenant to sign - around her 'interest' in our property too. We returned it with a note to say she is long gone and that her forwarding address wasn't shared with us as our Letting Agent manages tenant admin for us. I was also surprised to revive such a request.

Jon Pipllman

9:39 AM, 7th June 2016
About 2 years ago

A mortgage offer that didn't include those 3 clauses (in one form or another) would likely be much more expensive, were it even to be offered.

It is important that borrowers understand the clauses. They are all sensible from the perspective of the lender (the one who writes the terms of course)

One of the last things the lender wants to do is to call in a profitable loan before it has run to term, but one can understand why it needs to reserve the right to (try to) do so.

Where a lender makes a loan secured to a specific LTV then, just as the borrower might like to be able to revalue the property in a rising market to secure more borrowing / achieve a better loan rate, the quid pro quo is that the lender might like to revalue the property in a falling market to properly manage its risk.

If the borrower can't convince the lender that her plan to repay the loan within or at the end of the term is a sound one, then it is prudent for the lender to push the borrower towards the option that is most likely to result in predictable repayment - a repayment mortgage.

Howard is right that these terms are pretty universal and, in a benign market, unlikely to be used by lenders. I think he is right to suggest to think of the overall cost of the loan as priority.

Ultimately though, remember that the money isn't yours: you are only borrowing it and, if the lender's situation changes, or if the lender thinks your situation has changed, it might want it back (or want more interest from you) and will do anything it can, including interpreting the terms of the loan in its favour rather than yours, to try to achieve that. The small print is important!

Monty Bodkin

9:45 AM, 7th June 2016
About 2 years ago

"BOI and MX come to mind but they were extreme circumstances from a different bygone age"

I don't think BOI and MX have those 3 conditions. Can you post them as I can't find them in any of mine. If they had them, I would have thought they would have used them by now.

It seems more lenders are now inserting these clauses. I don't recall BM or Godiva having all those 3 clauses previously. A mortgage is clearly of less value with them and brokers should be highlighting this and advising accordingly.

The OP is right to be concerned in light of the recent behaviour by lenders. When the going gets rough, there is no loyalty to customers. Landlords should go through T&C's with a fine tooth comb to make a fully informed decision of the risk they are taking on.

Mark Alexander

11:45 AM, 7th June 2016
About 2 years ago

Are those conditions in the offer of loan or general conditions booklet?

Is there an inconsistency clause in the general conditions booklet.

Does the loan offer specifically direct you to the general conditions you don't like?
.

Peter Johnson

0:34 AM, 8th June 2016
About 2 years ago

Reply to the comment left by "Mark Alexander" at "07/06/2016 - 11:45":

The conditions are in the general conditions booklet and not in the Offer of loan.

Yes there is an inconsistency clause and it says that "if there is any inconsistency between these conditions and the Offer, the terms of the Offer will apply"

The loan Offer directs me to the general conditions booklet but not specifically to the clauses I am worried about.

I have always followed your advice in that I would like to take the money out of the property so that if and when prices fall I can use that cash to buy up cheaper properties but the clauses in the mortgage conditions booklet could stop me doing that.

I would really appreciate your imput.

Many thanks

Mark Alexander

1:15 AM, 8th June 2016
About 2 years ago

Reply to the comment left by "Peter Johnson" at "08/06/2016 - 00:34":

In that case Peter you will be almost as interested in the outcome of my Court of Appreal case against West Bromwich Mortgage Company as I am, and the thousands of borrowers who have already signed mortgage contracts on a similar basis.

I have always believed I know the law on this and raised £500,000 to prove it.

If I am successful then rest assured I will be going after all the other mortgage lenders who have abused their general conditions. I have a business plan ready to release so that thousands of other landlords can support me in defending our rights.

Fingers crossed hey?
.

Denise G

8:58 AM, 8th June 2016
About 2 years ago

not long now Mark!

Peter Johnson

14:48 PM, 8th June 2016
About 2 years ago

Reply to the comment left by "Mark Alexander" at "08/06/2016 - 01:15":

I think my case is a little different, my loan offer does not mention any of the points I don't like however the conditions booklet does......where does that leave me?

In the conditions booklet it clearly states that they can pull the loan in whenever they like and do not have to give a justified reason. Why on earth would any potential borrower go for a clause like that ?

I realise there are many out here that think property prices will only always rise but what if we see a slow down, a clause like this means I can not deploy the money taken out because they may call the loan in at any point? I'd be a sitting duck with a clause like that wouldnt I?

Kind regards

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