Photo by Wilson Finch Properties

This month, I want to talk about doing things the right way with lenders.  We have had a few issues recently with clients who have gone against the terms and conditions and caused some problems with future borrowing with them.

I think it’s really important to understand the changing climate within the lending market – we are seeing that banks are really tightening up on their criteria and exceptions and the approach now is very much that it is on their terms.  They definitely do not need to lend to anyone!

Let me give you a couple of examples.

We have a client who is looking to refinance his 5-bedroom HMO.  We are keeping it with the same lender for ease – they are offering slightly lower interest rates and the legals will be less as they have the charge.  In the two years that they have had this property on the fixed rate product, they have converted the garage at the end of the garden into a lettable room.

It’s 34m2 with a small kitchenette and ensuite.  The planning department was clear that this additional room could not be let and that they would not increase the licence to accommodate the room, so the HMO licence does not match with what we have.

The lender has effectively declined the case by asking for the impossible. For a couple of reasons: The HMO licence doesn’t match; there are two kitchens now (so it needs to go on their multi-unit product); and they carried out works to the property that fall outside the terms and conditions of the property.  They would not have consented to these works as they are very clear that nothing can be done to the property within the term of their loan.

You may feel that this is petty, but arguably it is!  But this is the reality of what we are seeing currently.  Don’t mess with the lender!

This isn’t a one-off either.  A client of ours was looking to refinance his block of flats, and again we wanted to keep it with the same lender.  In this instance, it was the lowest cost option for the client, and they offer a good valuation option for flats (aggregate value rather than a block value), which is what we needed.

During the term of his mortgage, the client has taken out a development loan on another site to build some more properties.  He needed to stretch his borrowing, so the development lender put what he thought was a comfort charge on this property.  It turned out to be a monetary charge, which the lender had not consented to.  As part of the refinance of the property, there is a huge amount of legal work to be done around this, and the lender with the first charge on the property is not happy that the client has not asked for permission (which they would not have given) for the charge.  Due to all the delays, the client is now on a standard variable rate as his fixed rate has finished.  All in all, it caused a huge delay, with no current solution, an expired valuation, and no additional funds for the client.

The lesson from both examples is that it’s imperative that you do things by the book.  It is very much up to the lender to decide whether they want to lend to you, and exceptions just aren’t being agreed currently.  We are seeing a real shift in attitude from lenders – from wanting to lend where they possibly could, to being far more cautious.  There is nervousness in the air about the next few years in the property market.

It is important to say that this is the minority of cases.  We are still getting plenty through!  You will all receive paperwork from your lender (sometimes quite a lot), so keep it to refer to and make sure you read what you are signing up for.  A good broker (like us!) will be on hand to discuss if you are looking to make any alterations, so speak to your broker about any questions you have.

As always, if there is a particular project you are looking at then please get in touch for a chat here.

About the Author:

Ellie Broadhurst is a specialist mortgage broker working at Baya Financial in partnership with The HMO Roadmap. She works with HMO property investors throughout their journey, from clients starting on their first project through to experienced portfolio landlords and developers. Learn more about Ellie here.