Mortgage changes

When a reader took out a mortgage with Coventry Building Society –which markets itself as TLC not PLC – she thought it was safe to assume that she wouldn’t get any nasty surprises on her loan.

She bought her property in May last year. After some consideration, however, she decided she wanted to buy another place around the corner and and let out her existing property. But, when she informed her building society of her intention, she was told that the borrowing costs on her fixed-rate deal would rise by one percentage point, increasing her mortgage costs by around £200 a month.

Coventry argues that by moving a tenant into the property our reader was changing the terms of her mortgage. Under such circumstances, lenders reserve the right to hike the interest rate as the risks on tenanted properties, such as property damage or mortgage arrears, tend to be higher. In its defence, Coventry also claims that the details of its charge hikes on such so-called “consent to let” terms were clearly stated in its mortgage terms, although our reader denies receiving this information. Her dilemma is further complicated by the fact that she is locked into a fixed-rate deal with sizeable redemption penalties, making it unviable to switch to another lender.

There is a salutory lesson here for borrowers. If you think you may wish to let out your property at a later date it is wise to check how your lender deals with rental properties. According to London & Country mortgage brokers, lenders such as Alliance & Leicester, Cheltenham & Gloucester, Woolwich, Bristol & West, Nationwide and Cheshire Building Society are among the most relaxed, tending not to charge a higher borrowing rate if you decide to rent out your property.

In addition to Coventry Building Society, those lenders that hike rates on rentals include Portman (by one percentage point), Skipton (normally between half and one percentage point), Norwich & Peterborough and Nottingham Building Society. Many also charge an arrangement fee of between around £95 and £199 to change the mortgage terms.