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Buy to Let Finance – be warned!

July 1st, 2019

PROPERTY FINANCE

Beware the ‘zombie banks’, buy-to-let owners told

As mortgage lenders leave the market in droves, experts have warned buy-to-let landlords to make sure they are not too reliant on a single bank for financing their properties.

Over the past six months, lenders such as the AA, Amicus Finance, Magellan Homeloans and Secure Trust Bank have quit the market. Tesco Bank has also announced plans to sell its existing mortgage book.

Nick Morrey of John Charcol, a mortgage broker, said the exodus of lenders should be a warning signal for landlords who may have multiple buy-to-let mortgages with a single provider.

In recent years there have been multiple instances where a mortgage book has been sold to a non-regulated third party, often known as a “zombie bank”. They are not able to issue new loans or alter existing ones, meaning customers may find it impossible to make small changes to their deal without remortgaging elsewhere.

This could force landlords to remortgage their whole loan to a rival bank, potentially incurring thousands of pounds in fees, if they wish to take cash from the value of the property. A landlord with multiple loans from a single provider is particularly vulnerable, Mr Morrey said. He urged landlords to spread their mortgages across multiple lenders.

“Landlords would be well advised to diversify not only their property portfolio but their lending portfolio as well,” he said. “If they use one lender that ceases trading, their portfolio would be at the mercy of whichever lender takes on their mortgages. Spreading the portfolio eliminates the risk of one lender selling them all to a zombie bank.”

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