Buy to let landlords might be surprised to discover that the BTL loans secured by mortgages, which they worked hard to obtain, have been sold on to someone other than their original lenders.
This is the process of mortgage securitisation and it has happened to around 80% of residential mortgages in the UK.
Mortgage securitisation was also blamed for contributing significantly to the financial crash of 2008.
If buy to let landlords have taken out loans that were securitised (sold) under this process, what are the implications for them?
Here, Bruce Lamb, spokesperson for Mortgage Securitisation Claims (MSC), explains what has been going on.
Security as a Sellable Asset
“The majority of BTL landlords will state that the security on the mortgage loan you take out is the property. ”
“What you may have not realised is that the main security is actually your pledge to repay the loan, with interest and that the property is only an underlying security which enables the lender to re-possess the property if the pledge or promise to pay is in default.”
“This pledge is, essentially a promissory note. It is a negotiable security and it becomes an asset on the lender’s balance sheet, before any money is released.”
The value of this asset is based on the amount the lender loans to the borrower plus the total amount of interest payable over the term of the mortgage. In other words, as an asset, it is worth a lot more than the amount borrowed, giving the lender a level of capital protection.
“What many people taking out a mortgage are unaware of is that regardless of any terms and conditions, by signing, the borrower always grants the lender an irrevocable power of attorney.”
“This allows the lender to do anything in the name of the borrower and, it will stay in place until all money owed to the lender by the borrower has been paid.”
In effect, this power of attorney makes the negotiable security sellable, without any further consent or knowledge of the borrower.
“The irrevocable power of attorney makes the security available to other lenders, by its use, your lender can sell your mortgage onto someone else without you having any say in the matter”
Bruce Lamb, spokesperson for Mortgage Securitisation Claims
Leading up to the 2008 crash, banks sold and bought these mortgage securities with a seemingly never-ending demand, which led to the lender paying no regard to whether their customers could realistically meet their obligations in paying them
back.
“It got to a stage where any rules regarding capital adequacy were routinely ignored and by 2008 the average was as high as over 80 times their capital.”
“Mortgage securitisation has implications for the wider economy, but also for the individual borrowers involved. The new person who takes on your debt may well be within their rights to set new loan terms, including interest rates.”
What Action Can Borrowers Take?
“We are now well aware that people can claim for being missold PPI. In a similar manner, borrowers may wish to explore their options regarding a mortgage loan that has been securitised or sold on.”
“As a borrower, you might be able to prove that your eligibility for a mortgage securitisation claim.”
“If the paperwork transferring your security and mortgaged loan to the new owner of your loan is incomplete, they are not entitled to continue to receive your payments”
Bruce Lamb, spokesperson for Mortgage Securitisation Claims
“It is important to remember that if the original lender has sold, transferred or assigned your mortgage then, from any viewpoint, the original loan has been paid in full.”
“Buy to let borrowers are already seeing a squeeze on their incomes due to Government changes regarding mortgage tax relief, concludes Bruce. “As a business model, it faces challenges ahead, and further mortgage securitisation could harm an already fragile foundation.”
If you are a buy to let borrower and want to discover if your loan has been securitised, please call Mortgage Securitisation Claims on 0161 393 8022 or visit mortgagesecuritisationclaims.co.uk/.
For an accompanying read,please visit Mortgage Securitisation: Whose Loan is It Anyway?
