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10th Jun 2009
CML advises buy-to-let lenders to act fairly
CML advises buy-to-let lenders to act fairly
The Council of Mortgage Lenders is publishing new guidance to reinforce that lenders act fairly in dealing with cases of arrears on buy-to-let mortgages.
It has already issued guidance for lenders dealing with arrears on owner-occupied mortgages, which came into effect at the end of January.
But this does not cover most buy-to-let mortgages. The new buy-to-let guidance comes into effect in September but, since it reflects existing practices, much of it is already being upheld, says the CML.
The guidance applies to loans agreed in England and Wales where, at the time the mortgage was taken out, both borrower and lender clearly understood that the property was to be let to a tenant.
Buy-to-let is a different type of lending, with some key differences from residential mortgages, including the fact that the borrower should not be living in the property and, unlike the owner-occupier, does not therefore risk losing the roof over his head.
Buy-to-let loans are not usually regulated by the Financial Services Authority or the Consumer Credit Act.
The guidance asks lenders to act fairly towards their customers and to take individual circumstances into account. In most cases, lenders will not consider enforcement action until all other options have failed – just as they do for owner-occupiers.
The guidance reinforces that lenders are flexible and do not adopt a “one size fits all” approach to dealing with cases of arrears. Instead, they use the full range of available options.
The CML says it is important to understand that, where a lender obtains a possession order against a borrower, it does not necessarily amount to an order for possession against the tenant.
If there was a tenancy before any mortgage was agreed, the lender will normally only take possession subject to the terms of the tenancy. If the lender wants vacant possession in these circumstances, it will be bound by the tenancy agreement. And where a tenancy was agreed after the loan but the lender consented to it, the lender seeking possession will also have to accept the terms of the tenancy.
Most buy-to-let mortgages automatically give consent to tenancies. So, a lender seeking vacant possession will usually be bound by the tenancy agreement, as long as its terms and conditions are being complied with. |
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