A recent story painted Natwest in a negative light when they told a property investor to either evict their housing benefit tenant or remortgage away from them triggering an early repayment charge of £2500.
The fact remains however that the property investor only found themselves in that position as they breached their mortgage conditions by letting it to that type of tenant in the first place. This only came to light when they approached Natwest for a further advance.
In this case, the broker Habito compensated the client for not advising them of the letting restriction when they sold the original mortgage, and this highlights the need for all landlords to ensure they are thinking about their future strategy.
Landlords can often be attracted to a deal that suits your immediate needs, without understanding the longer term implications. For example, the way the lender calculates affordability on a five year fixed rate may be an attractive way for you to maximise your borrowing on a purchase, but what will the options look like at the end of the 5 years? Does the lender have a rate switch option? If not, there is a risk that you or the property may not qualify for a remortgage, leaving you paying a higher SVR rate at the end of the 5 year term.
Other areas that should be explored are things like the lenders maximum mortgage term. A bridge loan for example will often be for a maximum of 12 months. Some bridge lenders have launched BTL products that have just 3-5 year maximum mortgage terms and many commercial lenders have maximum commitment terms of just 5 years. This means, even if you have taken a 20 year repayment mortgage, the lender is only committing to make the funds available for a maximum of 5 years, so what are your options likely to be at this end point?
Another question to ask yourself is what is your strategy? For example, do you plan to make any changes to the property structure, do you plan to let to tenants in receipt of benefits or do you plan to convert the property to a House in Multiple Occupation? What is the lenders criteria around this? For example, does the lender allow HMO letting? Local authorities will ask to see the lenders permission when an investor applies for a HMO licence, so it is important this area is covered off.
One of the big areas to explore is if you would like to borrow some more money against an increased property value say after refurbishment. Many of the newer specialist lenders do not offer ‘further advances’. Selecting the wrong product could result in incurring early redemption penalties for remortgaging elsewhere or taking a more expensive second charge product. This highlights the importance of using a reputable broker such as Connect Mortgages. Connect not only has access to over 110 lenders, but has the knowledge and experience to talk you through your strategy and identify the perfect lender.