Can Someone Explain The Psyche Of Mortgage Lenders/banks Please Re My Situation?

[Maggoty]

I am a 60 year old that has lived in my current house for 30 years and have a 10% mortgage/90% equity. I also own the house next door (40% mortgage/60% equity with a buy to let mortgage) which I rent out.

I have decided I would like to release some equity from the rental property, 10% approx.

I have a very good credit score. However.....

One mortgage co won't take it on because I would like to use some of the money to pay off my credit card. They don't lend if you want to use it for 'debt consolidation', no matter how small an amount it is. (This was a five year fixed mortgage)

Another company said no because I could in theory knock the wall down between the two and therefore vastly devalue the joint asset. Sort of understand their reticence in that case.

However the company I am with currently has initially said no unless I change the contract that my tenant is on from a TWO year contract down to a ONE year contract. I am at a loss. That doesn't make sense to my pea brain. Surely if remortgaging or mortgaging a rental property it is better to have a tenant wanting to be there for two years rather than just the one.

I am loathe to ask the tenant as I don't want them to think I am wanting to sell up or get them out. There is a one year break clause in the two year contract which the mortgage co are aware of as they have a copy.

Why is 1 year better than a 2 year contract?

Sorry if I have given too much detail. Just wanted to be thorough.

Thanks in anticipation

Alison

[AKMild]

Perhaps the lenders are concerned that you would not be able to service any more debt, even though the debt you've already got appears to be modest in relation to the total value of the assets. This view might be reinforced by the fact that you have credit card debt - i.e. are you spending more than you're earning?

The point about knocking the two properties into one is nonsense in my view. If all lenders were afraid of that then nobody with a semi could get a mortgage. You will almost certainly be in breach of your mortgage conditions if you make any significant alteration to either property without the consent of the respective lender.

The lender attitude to the tenancy point is more difficult to understand, although most lenders would prefer an Assured Shorthold Tenancy, which protects the tenant whilst they pay the rent but also gives the landlord (and therefore a mortgage lender) power to take vacant possession (eventually) and sell the property. Any property's marketability is affected by the terms of any lease that's in place, and lenders will always be wary of anything that's not in 'standard' form.

Regulated mortgage lenders now have a duty to assess 'affordability' before granting loans to individuals, and my suspicion is from what you've said that even though you're asset rich, you might be perceived as cash poor and therefore unable to pass their affordability criteria. I'd expect them to tell you that, though, rather than any bull about knocking the walls down.

[Maggoty]

Thanks for your answer AKmild. No unfortunately that can't be the answer. I am actually at the moment voluntarily paying double the mortgage amount needed and have done so throughout the mortgage term (over 5 years now) The new mortgage is actually LESS than the current mortgage minimum payment by £50 a month plus I wont have credit card bill to pay. They are my current suppliers so know all this plus have copies of my current account, my current account for the rental property, plus my isa account and savings account. I may not be cash rich but I am cash comfortable. It's the issue with the AST that has me flummoxed x

[themas]

Are you sure they've properly understood the tenancy agreement? Is the 1 yr break clause one which can be activated by either you or the tenant, or is it one which only the tenant can activate? Have you pointed the break clause out to them &/or asked them why they are insisting on what seems a pretty pointless condition?

[Maggoty]

Hi themas. Asked my mortgage broker to go back to them for an explanation. So far have not heard back. Hoping that that is good news. And yes , break clause is for both of us. But thanks guys. The fact that it is a puzzle to others reassures me. X

[ubasses]

As someone who used to do mortgages I must admit that not a lot of it makes sense. The only bit that does is the Tenancy agreement, when I was working the norm was always that it had to be 6 or 12 months AST agreement, but I am sure I read that many lenders are now looking at longer. Have you googled 'buy to let mortgage & 2 year Tenancy agreement. You may find the names of Lenders that could help, and point your Broker in the right direction.
Assuming that you did not want the loan over more than 15yrs which would take you to the maximum age for a Buy to let. You are well within LTV, paying off a debt, unless it is massive and they are worrying about you not living within your income, should not be a problem and part of the risk to all lenders is alterations to properties after purchase that could affect the value.

[DC_FC]

You credit score even good is of no relevance to lenders as they don't see it.