Banks Refuse Changes From Residential To BTL Mortgages

I read a post on a forum today which made me stop and think. The chap in question posed the questions:

If I wanted to rent out my residential property and asked permission from my lender and they refuse permission, what are my options?

Can they oblige me to take out a BTL mortgage with all the costs that will incur?

The short answer to this question is YES if they see fit they can force you to change to a BTL mortgage should you choose the letting route. Of course you still have the right to say no and keep it on residential.

If you find yourself in tough times and your circumstances change due to loss of job, or moving away or whatever other reason, it’s always wise to know in advance what your options may be.

Though I’m not surprised by it this hard line stance will cause even more heart ache for some people who are trapped due to a change in circumstances.

Abbey National for instance; are well known for taking a tough line and have outright refused many customers who asked the same question. The reply given is likely to be “switch to a buy to let and pay down your existing residential mortgage to 70% loan to value mark.” Abbey have been known to ask for £1000 to swap mortgages too. This is an astoundingly tough line in such difficult times. Birmingham Midshires take the same stance. I’m left wondering how many other banks are doing the same thing?

So it seems the the tables have turned. Buy to let is now seen as having a much higher default rate than residential, and as such, lenders are very nervous. After years of throwing money at anyone who wanted to own a buy to let property, they now can’t pull the rug away quick enough.

Rigid Lending

By being so rigid with their criteria, inevitably what will happen is that some folk will choose to let their property anyway without permission. This in turn could lead to even more unofficial landlords, with potentially more problems down the line if anything goes wrong with the tenant they put in the property.

By trying to squeeze money out of people who are already in a bind but trying to solve a problem legally, they may just drive it underground. Whilst I see the point the banks are making, it feels yet again like the banks are just finding excuses not to help people whilst paying lip service to doing so in the press.

In tough times, people do what they have to to try and survive and get though the recession the best way they can.

What Else Can You Do?

If you are in a position that requires a change in circumstance you could also look at the government rent a room scheme. This effectively allows letting furnished rooms in your home, you can receive up to £4,250 a year tax-free (£2,125 if letting jointly). Also you can look at Let To Buy mortgages which allow you to change via another lender.

You can also check your mortgage documents to see if you have a payment holiday clause. Many folks forget they have this option on their mortgage. Check your paperwork to see if it’s available on your mortgage. A six month break could really help you move forward and find new solutions, or give you time to sell perhaps.

Check other mortgage availability, if you have another offer your own bank may be more willing to negotiate a deal. Never be afraid to negotiate with banks, you may just get someone willing to play ball.

If you are having problems with your mortgage, we may be able to refinance it for you via our regulated professionals. You may be interested in this blog too: Why You Cant Negotiate Your Mortgage Debt With NRAM

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