Letting out property without CTL -lenders catching up

tbs624

Summary of article in Sunday Times, last weekend

Banks are cracking down on borrowers who let without seeking their lender's consent.

UK's biggest lender, Halifax, has apparently written to some of its borrowers whom it suspects of letting their property out without that consent.

The letters sent warn that unless Halifax receives a prompt response it will assume that the property *is* being let and a higher rate will be imposed on the mortgage . Those being targeted initially include those who have let properties previously, those whose phone calls to the Halifax flag up concerns and those who have alternative addresses registered with the LLoyds banking Group, who own Halifax.

Halifax is currently charging 5.49% for a CTL 3 year fix for borrowers with a 25% deposit - adding £2256 to annual repayments on a £200k mortgage ( there's a £999 fee too) Previously borrowers were obliged to switch from a resi mortgage to a BTL. After that 3 year fix the loan reverts to a standard varable rate at 3.99 above the Bank Rate.

Clydesdale and Yorkshire Banks have written to residential mortgagees warning that letting the property will mean a move to their standard variable rate ( atm 4.59%)

Nationwide adds 1.5% to rates plus a fifty quid application fee (£2016 pa on a £200K mortgage)

Coventry B/S does not grant CTL

Werdnal

Knew it would happen sooner rather than later! Just goes to show that the cynical posters here who argue against the need for CTL "because I have got away with it so long" will get their comeuppence in the end, and rightly so.

Sugared-frog

How do you prove a property isn't being let? If it is simply a case of replying to a letter surely the landlord on picking up his post would reply?

jjlandlord

tbs624 wrote: »

The letters sent warn that unless Halifax receives a prompt response it will assume that the property *is* being let and a higher rate will be imposed on the mortgage.

I should try that method and start sending letters around stating that unless I receive a prompt denial to my claim I will assume that I can do whatever I please.

Clearly they are looking for all possible ways to get some cash in (they had to be bailed out, hadn't they?)

LandyAndy

Sugared-frog wrote: »

How do you prove a property isn't being let? If it is simply a case of replying to a letter surely the landlord on picking up his post would reply?

Utilitity bills in the owner's name for the property might be a good start.

Werdnal

Sugared-frog wrote: »

How do you prove a property isn't being let? If it is simply a case of replying to a letter surely the landlord on picking up his post would reply?

My guess would be that letter is addressed to "The Occupier" rather than the LL by name. If tenant is ignorant of the need for CTL, they may still pass it to their LL for reply, but if letter is worded to put fear of god into tenant that they may lose their rental through mortgage breach, it may prompt the required response. In fact, a LL having post still arriving at a rental when not living there, should already ring alarm bells for the tenant anyway!

There are also other ways a lender can check. With so many agencies having digital records, it is only a matter of time before the Utilities, DVLA, electoral roll, HMRC, Council Tax, TV licensing, you name it, etc, all pool their resources (if they are not already), and highlight who is paying bills and registering themselves at certain properties, but not actually living there!

Sugared-frog

OK ... I can see I'm not very clued up about this:rotfl: ... luckily I'm not a landlord. I just thought if all you had to do was reply to a letter that it would be easy to get around it.

tbs624

LandyAndy wrote: »

Utilitity bills in the owner's name for the property might be a good start.

...except that those seeking to keep their rental under the radar sometimes keep the bills in their name and include a figure towards utility bills/C Tax in the rent (more fool them - Ts have no incentive to keep the bills down)


As Werdnal says, there is much other cross referencing - Miss MoneyPenny has flagged up National Hunter for example.

FireWyrm

OK, this is probably a stupid question, but WHY do you need consent to let? Why does letting a property change the risk to the lender? They still get their money, regardless?

jjlandlord

FireWyrm wrote: »

OK, this is probably a stupid question, but WHY do you need consent to let? Why does letting a property change the risk to the lender? They still get their money, regardless?

I'd venture to think they want to check that the change of risk resulting from the change of circumstances is still acceptable to them.

Of course nowadays they take the opportunity to increase the rate no matter what. Why? Because they can.

Werdnal

FireWyrm wrote: »

OK, this is probably a stupid question, but WHY do you need consent to let? Why does letting a property change the risk to the lender? They still get their money, regardless?

I may be way off the mark here, but my assumption is because the perceived risk of loss or damage to the property is higher if it is let to tenants, than if a residential mortgage holder is living in it. An owner occupier has saved hard to provide adequate deposit to achieve the mortgage in the first place and buy a place to live in themselves. The perception is they will look after the lender's "investment" in their property by keeping it in good repair. However, (forgive me for tarring many tenants with same brush), tenants do not have the same vested financial commitment in the property, so there is a higher risk that it may deteriorate in condition, and therefore value.

Also, people let for a variety of reasons - the most common lately seems to be because it won't sell. If they then go on to get into more serious financial difficulties, paying a second mortgage or rent on the property they live in, whilst letting the original mortgaged one, then defaults on payments could be more likely. A newbie LL letting because they feel they have no option, may not have the financial backing to support and maintain their let when things go wrong - how often do we read here that "my tenants have stopped paying and I rely on rent to cover the mortgage". So they then get in arrears themselves.

Any loan carries a risk, and the mortgage company want to ensure their investment in the property is as safe as possible, and that means maintaining the inherent property value (as much as is possible in the current climate), and ensuring the repayments do not dry up.

Also, after all, why should someone with preferential residential terms, then use the lender's property (which ultimately it is whilst the loan is outstanding), as a profit machine?