Many landlords think of mortgages as an equal agreement between lender and property owner. But through small print terms, the odds are actually stacked high in the lender’s favour. Ezylet looks at some of the costly implications of breaching your mortgage terms.
The mortgage small print that could take away your rental property
Many people think being a landlord is an easy ride. If you’re fortunate enough to be able to buy and let a property, it’s just a case of advertising it and watching the rent flow in – or that’s the common misconception.
In fact, letting your house or flat brings many responsibilities and technicalities to worry about. These include a raft of mortgage small print that, should you breach its terms, can lead to “remedies” that protect the lender’s interests. Those remedies can even include repossessions of your rental property.
While a lot of mortgage small print is standard stuff, the danger for landlords is in not being aware of terms specific to their mortgage – and of course, in breaching them.
Charges and fees
On buy-to-let (BTL) mortgages, for example, the lender will insist on a copy of your buildings insurance policy. If this lapses, the lender will usually institute its own policy and charge it to the mortgage account.
Failing to pay ground rent and service charges can have a similar effect. The freeholder to whom the rent is due will eventually approach the lender to settle the debt. The sum is then charged to the mortgage account – with some hefty administration charges on top.
BTL mortgages often strictly forbid letting to tenants on benefits, too. While being rather discriminatory, it’s not so difficult to find professional tenants – but what happens if they become unemployed mid-way during the tenancy?
These are just a few of the ways you can breach your mortgage terms and get hit in the pocket.
Landlords also need to be especially careful not to breach terms protected by the Law of Property Act (LPA) of 1925.
In May, Landlord Zone reported that one British landlord had a property portfolio worth £2 million repossessed by her lender, with no right of appeal – all because she breached the terms of her mortgage.
Lenders can even change mortgage terms midway through a loan – something that the Financial Conduct Authority is currently thinking about changing, but which still affects landlords today.
Right to immediate possession
A key point, noted by a barrister writing on the legal case Thakker v Northern Rock Plc  EWHC 2107 (QB), is that a mortgage is ultimately “a right to immediate possession of the property” by the lender.
Of course lenders have to act reasonably, at the very least for the sake of their own reputation.
But should you breach your mortgage terms, lenders can use that breach as grounds for repossession at any time during the loan term.
That’s why it’s vital not just to pay your mortgage on time, but keep an eye on that tricky small print too.