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Buy-to-let borrowers warned about lenders' tactics
The Residential Landlords Association (RLA) has warned buy-to-let borrowers that lenders may try to change their borrowing rates as property values fall.
The association highlighted that some mortgage agreements enable lenders to alter their rates if the loan-to-value ratio (LTV) changes substantially.
For example, an 80 per cent mortgage on a £100,000 property would become a 100 per cent mortgage if the property dropped in value by £20,000.
However, the RLA said of even greater concern were scenarios where lenders claim to be able to produce "valuations" in support of their own cases, even though the landlord’s portfolio of properties could be shown to meet the original LTV.
Alan Ward, chairman of the RLA, said: "Lenders may be seeking large repayments of capital as well as changing to more expensive interest rates."
He added: "Altering the terms of a contract by amending the valuation to suit the lender’s objectives is grossly unfair to landlords. Not only does it affect the viability of the landlord’s businesses, it threatens the security of tenants.
"Producing ‘bespoke valuations’ is highly un-professional and I call on the Royal Institute of Chartered Surveyors (Rics) to condemn this practice.
"When property values begin to swing upwards again I doubt these lenders will invoke the same clause to reduce the rate of borrowing."
