Ukar Portfolio Landlord Disposals

[Neverwhere]

How will UKAR handle property disposals from portfolio landlords in light of the recent Budget?

It seems to me that the most aggressively leveraged landlords, who will be worst affected by the recent Budget changes to how tax relief on BTL mortgage interest and taxable rental income are calculated, are also highly likely to have mortgages tied up in UKAR. The 'bad banks' whose mortgage books UK Asset Resolution was set up to run down were in part 'bad' precisely because they had been aggressively lending into the buy-to-let sector:

BTL was back at the expense of taxpayers and savers, as the ability of banks to service this relatively new market was undoubtedly saved by the British government's bank bailout. BTL only formally started in 1996. Yet, remarkably, in 2010 I established that 56 per cent of BTL mortgages ever lent in Britain were sitting on the books of bailed-out banks.

Roughly half of the outstanding BTL mortgage stock is being nursed by the state in some form. At the time of the bailout, Bradford & Bingley and Northern Rock had, between them, BTL mortgage liabilities worth £30 billion, all of which came into government hands. I subsequently found out - from figures that the mortgage industry did not want released - that about 65 per cent of BTL lending in the year after the banking bust was coming from banks that had been bailed out. In the absense of the bailout, little of this business would have been done, and the existing BTL mortgages would have been dealt with far more harshly. Buy-to-let had become a quasi-nationalised industry.

- Faisal Islam, The Default Line

That being the case it would be surprising if the most aggressively leveraged landlords had not taken out mortgages with these lenders prior to them being rolled into UKAR. In fact, aggressively leveraged landlords are by definition subprime property speculators - betting everything on house price appreciation at very high leverage, on thin margins and with no real repayment plan - and so in some respects they are the quintessential remaining UKAR borrower, being the least likely to have been able to remortgage elsewhere.

In light of the recent Budget many of these aggressively leveraged landlords will be looking at negative cash flows in the not too distant future and may as a result be looking to dispose of some or all of their property portfolios. They may encounter several issues in relation to this, not least of which being that aggressive mortgage equity withdrawal may mean that they now lack the equity to pay their CGT (h/t Bland Unsight and Frizzers), but those with mortgages tied up in UKAR may have additional problems.

The issue is clauses like this one from Mortgage Express, that allow UKAR to enforce the repayment of all outstanding mortgages on the disposal of a single property:

15 If you have more than one mortgage with us

a Our right to combine mortgages is not restricted in England and Wales by section 93 of the Law of Property Act 1925, (or in Northern Ireland by section 17 of the Conveyancing and Law Property Act 1881).

b If you have more than one mortgage with us, and you want to pay off just one of those mortgages, we have the right (except where the money is owing under a regulated agreement) to stop you paying off the mortgages separately, and to insist that you pay them all off.

Mortgage Express Terms & Conditions (h/t little fish)

Aggressively leveraged landlords might therefore find that they have placed themselves in a position where they cannot even safely dispose of those properties on which they have little or no Capital Gains Tax due, as doing so would allow UKAR to force the sale of other properties (perhaps with unpayable CGT bills, in negative equity, or in concentrated areas flooding the local housing market and depreciating values). UKAR have shown every inclination to enact these clauses in the past, especially in regards to unsustainable portfolios:

Landlords complain of heavy-handed tactics by taxpayer backed 'bad bank' UK Asset Resolution on buy-to-let loans

• Body charged with getting taxpayer bailouts back accused of using 'any excuse' to repossess

The so-called 'bad bank' set up to wind down the mortgage books of defunct mortgage lenders has come under attack by landlords who have accused it of forcing them out of business.

UK Asset Resolution was set up in 2010 to manage the mortgages of Bradford & Bingley and Northern Rock which were both nationalised in 2008. UKAR has the key aim of cutting back the mortgage book as a means to repay taxpayers.

But landlords have complained UKAR is 'bullying' borrowers, using contract small print to repossess properties, or forcing landlords to sell when a greater degree of leniency could allow them to stay afloat and repay their loans.

Mortgage Express was a subsidiary company of Bradford & Bingley and specialised in lending to landlords. A field team of 'relationship managers' has been visiting landlords with either large portfolios or account activity to undertake 'account reviews'.

Online landlord forums such as Property118 and PropertyTribes are full of stories from portfolio landlords who’ve come under pressure during or after a review. Landlords complain that UKAR uses terms and conditions buried in the mortgage small print to call in loans.

A particular clause that UKAR is using regularly, or threatening to use, is the little-known 'right to consolidate'.

This means that if a landlord has more than one Mortgage Express mortgage and decides to sell a single property, UKAR can force him or her to use the proceeds to pay down mortgages on other properties.

Even more frightening for professional landlords is that if a landlord decides to sell one property, UKAR can force the redemption of the entire portfolio.

A UKAR spokesperson says: 'Our mortgage conditions include a "right to consolidate" clause which applies to our portfolio landlords. Where a property is sold as a result of a repossession or via an LPA receiver, we will apply any sales surplus to other mortgage accounts that the landlord holds with us, if these are also in default.

'Where a borrower arranges a sale or otherwise seeks a redemption of one mortgage within a portfolio, we also have a right to refuse to allow the redemption and to insist that the borrower redeems the whole portfolio.

'In these circumstances, rather than insisting on other redemptions, we would usually assess the equity position across the remaining portfolio and negotiate with the borrower for some, or all, of the surplus from a proposed sale to be used to pay down the balance on the remaining portfolio.'

UKAR also admits that it’s calling in buy-to-let loans with as little as two months’ arrears, mortgages where a property is in serious disrepair, even if payments are up-to-date, and loans where a landlord has breached the terms and conditions.

A UKAR spokesman says: 'With Buy to Let mortgages, arrears of payments which equate (in amount) to two months' worth of payments are a breach of our mortgage Ts&Cs and will usually result in Mortgage Express considering whether it is appropriate to take enforcement action.'

UKAR says that it usuallys seek to engage with the landlord, even after enforement action has started, and 'where the portfolio is sustainable and the landlord is cooperative we will usually offer to reschedule the debt subject to revised terms'.

[Si1]

Do they cross associate mortgages in different arms of ukar, eg is there a firewall between say b&b and nr mortgages now under ukar's umbrella, held by the same landlord?

Edited August 29, 2015 by Si1

[Neverwhere]

Do they cross associate mortgages in different arms of ukar, eg is there a firewall between say b&b and nr mortgages now under ukar's umbrella, held by the same landlord?

I don't know, but that's an interesting question as surely the most aggressively leveraged landlords will be likely to have mortgages with both. The UKAR spokesman in the article above certainly implies that there is no firewall in relation to disposals triggering consolidation clauses:

A UKAR spokesperson says: 'Our mortgage conditions include a "right to consolidate" clause which applies to our portfolio landlords. Where a property is sold as a result of a repossession or via an LPA receiver, we will apply any sales surplus to other mortgage accounts that the landlord holds with us, if these are also in default.

'Where a borrower arranges a sale or otherwise seeks a redemption of one mortgage within a portfolio, we also have a right to refuse to allow the redemption and to insist that the borrower redeems the whole portfolio.

'In these circumstances, rather than insisting on other redemptions, we would usually assess the equity position across the remaining portfolio and negotiate with the borrower for some, or all, of the surplus from a proposed sale to be used to pay down the balance on the remaining portfolio.'

[Si1]

I don't know, but that's an interesting question as surely the most aggressively leveraged landlords will be likely to have mortgages with both. The UKAR spokesman in the article above certainly implies that there is no firewall in relation to disposals triggering consolidation clauses:

So they are making sure ukar are ahead of paying off other creditors or the money going, say, abroad?

[Si1]

So if a major creditor/portfolio landlord sells one house, tries to pay off that mortgage with ukar, that could trigger a repo on ALL the mortgages he has with them, since it changes the LTV ratio of the overall debt?

Would that not come as a bit of a shock?

[Neverwhere]

So if a major creditor/portfolio landlord sells one house, tries to pay off that mortgage with ukar, that could trigger a repo on ALL the mortgages he has with them, since it changes the LTV ratio of the overall debt?

Would that not come as a bit of a shock?

If they haven't read their T&Cs or consulted UKAR about the sale then yes, I would think so!

[Neverwhere]

So they are making sure ukar are ahead of paying off other creditors or the money going, say, abroad?

I think more than anything else they are just trying to wind-up the book as quickly as possible.

As I understand it if they appoint an LPA receiver then HMRC moves to the front of the queue for CGT purposes, should any be due, and yet UKAR appears very happy to appoint LPA receivers.

The thing which many aggressively leveraged landlords don't seem to understand is that UKAR does not care what happens to them, it just wants them gone.

[Si1]

If they haven't read their T&Cs or consulted UKAR about the sale then yes, I would think so!

it's not generally common to consult your mortgage company before selling a house is it?

this could be a very nasty surprise to some - ahem - 'businessmen sorry amateur landlords'

[Bland Unsight]

Would that not come as a bit of a shock?

Mostly likely they all know that they are totally kippered.

Presumably a great deal of the posting we see on their fora about selling up is just bluster. With the MEW-CGT mechanism considered at the portfolio level anyone who has been at the table long enough and re-mortgaged aggressively enough to build a 10+ portfolio must be dicing with disaster at the portfolio level.

They need significant prices rises and they need them chop-chop and they need those rises to hold up in the face of tens of thousands of leveraged landlords dumping 10+ homes on the market between now and 2020, along with a good number of the smarter smaller players doing the same thing. Some London leveraged landlords are probably close to a Get Out of Jail Free Card, but lots of others in markets outside London and the South East are going to be shit out of luck.

If the BTLer is the marginal buyer setting prices then current price moves reflect the presence of ridiculously low fixed rate and tracker deals (i.e. sub 2% before fees at lower LTVs). As these deals are removed from the market, prices will retrace.

Any portfolio leveraged landlords that have the equity to pay the CGT and a decent size Mortgage Express portfolio in UKAR have two choices:

1. Hold on facing insolvency from Income Tax* over the next five years, but hoping for Osborne to reverse an incredibly popular move that promotes financial stability, (sorry, guys - not gonna happen).
2. Sell the whole portfolio MEx immediately

IMO anyone who can sell who is not selling already but instead pissing around writing letters is a total f**king moron. Dreams are great, but sometimes you need to wake up and sell now, (and sell everything).

* Don't forget the Basel III risk-weighting revisions and the possibility that when current daft fixed rate deals and tracker rate deals are withdrawn deals on offer in the future will be at current SVRs of circa 5%, (i.e. almost twice current rates, therefore doubling the interest rate expense - good luck doubling the rent...)

Edited August 29, 2015 by Bland Unsight

[little fish]

Theses guys play hardball

http://www.nara.org.uk/wp-content/uploads/2013/03/guide-to-property-receivership.pdf

Property Tribes post, 26 pages of it. Theres also a reply from Mortgage Express linked.

http://www.propertytribes.com/mortgage-express-getting-tough-t-8904.html

Edited August 29, 2015 by little fish

[Si1]

Mostly likely they all know that they are totally kippered.

...apart from the ones who didn't understand the difference between Ts and Cs and a glossy leaflet from West Brom?

have you been skipping your iced baths there ?

[Venger]

These recent posts appear to be position for one portfolio landlord - although he still seems to have mind on expanding his portfolio.

So even properties with high equity, the MX/UKAR want the sales proceeds towards debt in the rest of portfolio, in some instances, it seems to me (on first reading).

Steven O'Neill 28/08/2015 at 11:19

I never post and am a portfolio landlord and was planning on expanding as house prices are low and rental demand high in my area I have to have open viewing days as I have viewers queuing out of the door this government doesn’t want portfolio landlords end of this is the latest in a long line of barriers put up. Direct payment of hb abolished, empty houses you now have to pay full council tax and use Mafia style debt collectors if u refuse, universal credit what a joke, endless red tape,

Most landlords who want to sell may have mx mortgages owned by the government I am trying to sell a few ( due to this new tax law ) and guess what I can’t unless I give all net proceeds to them I feel like the country I live in and contribute to is attacking me from every angle and I feel like I am being punished for taking risks and getting on in life to have the goal posts changed so much it is blatantly un fair and the sooner i leave this joke of a country run by public school boys who haven’t got a clue about business and the real world the better sorry to rant but I am so angry it’s untrue

Steven O'Neill 28/08/2015 at 15:49

Hi Ros in response to mx they send you a letter explaining the right to consolidate all money charge basically u cannot remortgage any individual properties within in your portfolio they will insist u pay off all which they know is impossible so if you want to sell individual properties they take the net proceeds to pay down your other loans. You already allowed to deduct estate agent fees solicitor fees and capital gains what I don’t understand if you paid say 120k put your deposit in so you owe 100k to mx if you sell for 120k so breaking even will they want you to hand over the 20k even though you have broke even and got your money back in other words is it net profit they keep or net proceeds I think it is the latter to be honest

Steven O'Neill 28/08/2015 at 16:11

They won’t let you redeem the mortgage unless you hand over all proceeds of the sale they will simply refuse to let you do it to be honest the net proceeds will be negligible anyway due to the current LTV

[Neverwhere]

it's not generally common to consult your mortgage company before selling a house is it?

this could be a very nasty surprise to some - ahem - 'businessmen sorry amateur landlords'

I think from Venger's post above that UKAR have been sending out letters explaining the situation, so any aggressively leveraged landlord who is in this position should be aware of it, though they may not have considered all of the implications.

[Neverwhere]

Theses guys play hardball

http://www.nara.org.uk/wp-content/uploads/2013/03/guide-to-property-receivership.pdf

Property Tribes post, 26 pages of it. Theres also a reply from Mortgage Express linked.

http://www.propertytribes.com/mortgage-express-getting-tough-t-8904.html

Thanks little fish, I'll have a browse

[Neverwhere]

Mostly likely they all know that they are totally kippered.

Presumably a great deal of the posting we see on their fora about selling up is just bluster. With the MEW-CGT mechanism considered at the portfolio level anyone who has been at the table long enough and re-mortgaged aggressively enough to build a 10+ portfolio must be dicing with disaster at the portfolio level.

They need significant prices rises and they need them chop-chop and they need those rises to hold up in the face of tens of thousands of leveraged landlords dumping 10+ homes on the market between now and 2020, along with a good number of the smarter smaller players doing the same thing. Some London leveraged landlords are probably close to a Get Out of Jail Free Card, but lots of others in markets outside London and the South East are going to be shit out of luck.

If the BTLer is the marginal buyer setting prices then current price moves reflect the presence of ridiculously low fixed rate and tracker deals (i.e. sub 2% before fees at lower LTVs). As these deals are removed from the market, prices will retrace.

Any portfolio leveraged landlords that have the equity to pay the CGT and a decent size Mortgage Express portfolio in UKAR have two choices:

1. Hold on facing insolvency from Income Tax* over the next five years, but hoping for Osborne to reverse an incredibly popular move that promotes financial stability, (sorry, guys - not gonna happen).
2. Sell the whole portfolio MEx immediately

IMO anyone who can sell who is not selling already but instead pissing around writing letters is a total f**king moron. Dreams are great, but sometimes you need to wake up and sell now, (and sell everything).

* Don't forget the Basel III risk-weighting revisions and the possibility that when current daft fixed rate deals and tracker rate deals are withdrawn deals on offer in the future will be at current SVRs of circa 5%, (i.e. almost twice current rates, therefore doubling the interest rate expense - good luck doubling the rent...)

The thing is some of them literally think that this is secret option no 3. and they are going to go for it.

Remember that those landlords who have aggressively leveraged themselves into this ridiculous position will have self-selected for certain traits. Having a good understanding of what constitutes sustainable practice is not one of them.

[little fish]

Very interesting case from 2014

The mortgage terms allowed ME to consolidate the borrower's mortgages as they expressly excluded section 93 of the LPA. Contrary to the borrower's assertions, the general law also allows a mortgagee to consolidate mortgages which have been transferred from a different mortgagee (which was true of three of the six mortgages)

https://www.walkermorris.co.uk/business-insights/high-court-strikes-out-borrower%E2%80%99s-repeated-attempts-avoid-repossession

Edited to go double check something

Edited August 29, 2015 by little fish

[Bland Unsight]

...apart from the ones who didn't understand the difference between Ts and Cs and a glossy leaflet from West Brom?

have you been skipping your iced baths there ?

The thing is some of them literally think that this is secret option no 3. and they are going to go for it.

Remember that those landlords who have aggressively leveraged themselves into this ridiculous position will have self-selected for certain traits. Having a good understanding of what constitutes sustainable practice is not one of them.

Ah! I see my error. Yes, indeed. I have been unable to take a Cognitive Impairment Ice Bath (CIIB) as my butler, Archie, who is required to supervise it and ensure my safety is away, (something to do with a dance competition - there was talk of "Schoolin' dem pimp-ass bitchez" with what I believe he called a "windmill", but I was distracted by thoughts of HMRC and the smell of fishguts and thus not really paying attention).

[Neverwhere]

Very interesting case from 2014

The mortgage terms allowed ME to consolidate the borrower's mortgages as they expressly excluded section 93 of the LPA. Contrary to the borrower's assertions, the general law also allows a mortgagee to consolidate mortgages which have been transferred from a different mortgagee (which was true of three of the six mortgages)

https://www.walkermorris.co.uk/business-insights/high-court-strikes-out-borrower%E2%80%99s-repeated-attempts-avoid-repossession

So UKAR could effectively force the sale of entire portfolios, even where some of those mortgages are held outside UKAR?

That is very interesting indeed, thank you little fish!

I also think that this aspect of the case from your link is quite striking:

The mortgages prohibited the granting of any tenancy without prior written consent of the mortgagee, breach of which would lead to the entire mortgage debt being repayable immediately. The borrower had granted tenancies on all six properties. It argued that there was an "implied relaxation" of this condition because the properties were mortgaged on a buy-to-let basis. Mortgage Express denied that any consent to let had been sought by the borrower. This was accepted by the Court, which said it was for the borrower to prove that consent had been granted, which it had failed to do.

I wonder how many buy-to-letters have ever thought to seek written consent from their mortgagee before granting tenancies?

Edited August 29, 2015 by Neverwhere

[little fish]

So UKAR could effectively force the sale of entire portfolios, even where some of those mortgages are held outside UKAR?

That is very interesting indeed, thank you little fish!

I also think that this aspect of the case from your link is quite striking:

I wonder how many buy-to-letters have ever thought to seek written consent from their mortgagee before granting tenancies?

Removed for now - til I get it confirmed

[Neverwhere]

Removed for now - til I get it confirmed

I've edited my reply to your earlier post to respect your edit, but do let us know if you get it confirmed!

[little fish]

So UKAR could effectively force the sale of entire portfolios, even where some of those mortgages are held outside UKAR?

That is very interesting indeed, thank you little fish!

I also think that this aspect of the case from your link is quite striking:

I wonder how many buy-to-letters have ever thought to seek written consent from their mortgagee before granting tenancies?

Seems I got your hopes up for nowt Neverwhere. Sorry On the plus side for me at least, I now know where my confusion came from lol. Even with one lender the right to all properties must be documented in the mortgage contract. As far as buy to letters ( much better description than landlords) getting written permission to let I have never heard of any individual letter getting such.

[Neverwhere]

Seems I got your hopes up for nowt Neverwhere. Sorry On the plus side for me at least, I now know where my confusion came from lol. Even with one lender the right to all properties must be documented in the mortgage contract. As far as buy to letters ( much better description than landlords) getting written permission to let I have never heard of any individual letter getting such.

Ah well, it's still interesting that they can pull in all the MX loans and I suspect that they may be able to consolidate across UKAR, assuming the relevant T&Cs are in place in the original contracts. Thank you for checking

The fact that issuing mortgages on a buy-to-let basis does not apparently give an automatic right to the mortgagor to grant tenancies without written permission from the mortgagee is hilarious! The dangers of doing deals in an unregulated mortgage market writ large...

'What is the most dangerous toxic financial asset in the world?'

This was the question put to me by the chief executive of a leading European bank. Anxious to display my superior knowledge of the darkest corners of the shadow banking system, I replied: 'Credit-default swaps on super-senior tranches of asset-backed, security-collateralised debt obligations.' I thought I had come up with a pretty pithy answer.

'No,' he gently chided me. 'The most dangerous financial product in the world,' he paused a moment for effect, 'is the mortgage.'

The mortgage: from the Old French words mort and gage. Disputed translation: 'death contract'.

- Faisal Islam, The Default Line

[Si1]

Was that clause about granting tenancies a mx clause or a ukar (act of parliament?)

Edited August 29, 2015 by Si1

[CunningPlan]

Ah well, it's still interesting that they can pull in all the MX loans and I suspect that they may be able to consolidate across UKAR, assuming the relevant T&Cs are in place in the original contracts. Thank you for checking

The fact that issuing mortgages on a buy-to-let basis does not apparently give an automatic right to the mortgagor to grant tenancies without written permission from the mortgagee is hilarious! The dangers of doing deals in an unregulated mortgage market writ large...

I would say there is a worry in here. If the bank has not granted permission for the particular tenant, is the tenancy agreement therefore void? In which case, if the LL is in default can the tenant be evicted before the end of the (now useless) tenancy agreement?

[Si1]

I would say there is a worry in here. If the bank has not granted permission for the particular tenant, is the tenancy agreement therefore void? In which case, if the LL is in default can the tenant be evicted before the end of the (now useless) tenancy agreement?

In which case can the tenant seek damages from the landlord?