Lenders changing the rules are threatening housing recovery

Lenders are threatening the recovery of the housing market by pulling mortgage products and not replacing them, whilst raising rates on new products.

In a separate development, at least one lender appears to be trying to invoke a clause in the mortgage agreement, allowing it to hike rates to an existingborrower if a property’s value falls.

The Residential Landlords Association said at the weekend that it had seen proof of a lender trying to change its rates. The lender concerned had produced its own valuations in support of its case, which concerned a buy-to-let andlord with a portfolio of properties.

The RLA warned: “Some mortgage agreements enable lenders to alter their rates if the loan-to-value ratio (LTV) changes  substantially. For example, an 80% mortgage on a £100,000 property – giving an LTV of 80% – would become a 100% mortgage if the property dropped in value by £20,000.” 

RLA chairman Alan Ward said: “Lenders may be seeking large repayments of capital as well as changing to more expensive interest rates. 

“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 RICS (Royal Institute of Chartered Surveyors) 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.”

The lenders who have, in the last three weeks, withdrawn mortgage deals for house purchase are Woolwich, Lloyds and RBS.