Mortgages Tips

Buy-to-let landlords warned over 'zombie bank' mortgage risk 


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

In the last six months lenders such as the AA, Amicus Finance, Magellan Homeloans and Secure Trust Bank have quit the market. Most recently, supermarket giant Tesco announced its plans to exit the industry and sell its existing mortgage book.

While some of these departing lenders offered only residential loans, Nick Morrey of John Charcol, a mortgage broker, said it 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”. These zombie banks are not able to issue new loans or alter existing contracts, meaning customers may find it impossible to make small changes to their loan without remortgaging elsewhere.

This could result in landlords being forced 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 ensure that their loans are from multiple providers to mitigate this risk.

“Landlords would be well advised to diversifying not only their property portfolio but their lending portfolio as well,” he said.

“If they use one lender which ceases trading, most or all of their portfolio would be at the mercy of whichever lender takes on their mortgages. By spreading your portfolio, this eliminates the risk of one lender selling your whole portfolio to a zombie bank.”

Mr Morrey said that landlords in this scenario would incur large costs if they wish to take out a further advance – releasing cash from the home in order to fund refurbishment work, for example.

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