Mortgage rate crisis

By THIS IS MONEY
Updated:

 

I have a property worth £54,000 which I have been renting for a year. The Halifax has now asked me to convert to commercial lending at 2.5% above base rate. But I am making no profit in the rental as it is - what alternatives do I have which will not cost me money? DS, Blackburn, Lancs.

Patrick Bunton of mortgage brokers London & Country Mortgages says: This type of letter is not uncommon and whilst at face value the Halifax may appear to be treating you badly, there is more to the story. Lenders put lending in different categories eg owner-occupied residential mortgages, commercial residential mortgages (ie rented properties), commercial mortgages (shops, garages, offices etc).

Historical performance shows the owner-occupied residential mortgage is the lowest risk. As with any lending institution Halifax therefore looks carefully at the risk of lending in different categories and sets interest rates for each accordingly. Naturally, the higher the perceived (or real) risk, the higher the rate it wants to charge. Remember this is assessed based on its general lending experience over the years and not is individual persecution of you.

In addition, many lenders view commercial (defined as money-making) lending to an individual differently to lending for owner-occupation. Where there is an element of profit to the person or company to whom they are lending, the lender would argue that it deserves a higher return as well - hence the higher rate. Otherwise they are taking a higher risk without it being reflected in higher profitability. It is true that in the past the rate of default on houses that were let has been higher than the rate of default on owner-occupied houses - I guess this is not surprising.

So, you can appeal to Halifax to charge a lower rate or if they won't, consider switching your mortgage away to a buy-to-let deal with another lender at a lower rate. An example would be National Counties which will lend up to 75% on a rental property at base rate (6.59%) plus 0.25%. See best buy-to-let deals in This is Money's mortgage pages.

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