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Misleading Lending – how “great new deals” could cost you more

November 18, 2009

A few posts have concerned me lately and really reinforce the need to check your paperwork and any small print with regards to mortgages and new lending.

A recent post I saw claimed that 85% LTV was back for Buy To Let – and proclaimed this could be the start of things to come…but when you looked closely it wasn’t really a 85% deal. They would only loan you that amount of money if you were in negative equity!

The “deal” was that they could offer you 85% of your original purchase price – or 70% of the current market value. Given the loan rates were 6.99% – which is very high in the current market, I fear some landlords may be misled by the 85% LTV headline. This type of “misleading lending” is worrying as it preys on landlords’ desire to release equity.  However, this deal when stripped bare appears to just be another 70% LTV deal – with a massive interest rate!

Your current lender claiming to offer you a ‘great new deal’ is the other worrying trend of ‘misleading lending’ we are seeing. A customer has been offered a ‘great new deal’ with her current lender when her fixed rate expires next month – BOE base + 4.44%. Now, this may appear OK when compared to some of the current Buy To Let deals out there. However, this is a massive rip off when you do the homework and look at the original mortgage offer – which stipulates the rate reverting to BOE base + 1.25% for the life of the loan with no penalties.  This ‘great new deal’ would actually cost this customer 3.19% MORE.

In this climate, banks are looking for increased ways to boost their revenues – but when this means shafting their own customers under the guise of a ‘great new deal’ this is completely unacceptable. Given the rise of repossessions among the buy to let sector this type of ‘misleading lending’ by your current lender is scary. So make sure you check the paperwork and the small print and don’t get caught out by these sharks!

www.VirtualLetz.com – Bringing people & property together

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4 Comments leave one →
  1. November 18, 2009 9:49 am

    I would be less concerned about the banks and more focused on the investor’s ability to act wisely. Given what you have written the facts are all there for any investor who is willing to honestly do a bit of due diligence.

    Too many investors act like they are a victim and someone forced them to enter into bad deals. Like they pay no roll other than to be the abused party to the deal.

    It the investors cannot take the heat in the kitchen no one is asking them to stay.

    If the loan products are not useful, attractive or they do not serve a need the lenders will withdraw the offers.

    I applaud your effort to highlight what investors should be considering when they shop for a loan. The investors need to remember they are shopping so some work is required.

    John Corey

    • November 18, 2009 9:59 am

      I agree with your comments John, although as you point out, I am more concerned about ‘novice’ investors who may not do as much dd as necessary and esp. when their current lender dresses up a ‘wolf in sheep’s clothing’!

  2. November 18, 2009 5:24 pm

    Not something I have come across directly but one to be wary about is that when some of these lenders parade their “Fantastic New Deal” in front of the client, the client if he takes the package on offer sometimes creates a “new” facility and to the lender, the borrower/introducer/lender relationship is sometimes voided.

    This has happened to us a few times with short term bridging and drawdown development deals where the borrower is told by the lender “this is a much better way of doing it”, the agreement is rewritten and as the original introducer is no longer in the loop, their ability to sort things out is eroded under the guise of Data Protection as in “you didn’t introduce this deal (I know you changed it!!) so we can’t talk to you about it…”

    Some borrowers are totally inept in sorting things out for themselves and get themselves into all sorts of awkward situations, and these lenders are still lending!

    Dave Winter

  3. November 18, 2009 7:57 pm

    I’m with John on this one. While I don’t condone misleading advertising/ marketing (which this certainly is), people shouldn’t be investing if they can’t figure out something as simple as that. That said, I think there could be issues for the ASA here if anyone were to complain.

    Household mortgage holders are a different cart of bananas and should be given a much higher level of protection.

    How do I upload a photo BTW?

    Rich

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