ASK533: Could your lender pull the rug on your mortgage? PLUS: Should deposits rise with rent?

0:02Rob B:Hi, I'm Rob. And I'm Rob.

0:03Rob D:And this is Ask Rob and Rob.

0:06Rob B:Hey everyone, it's Ask Rob and Rob, the show where you get your questions in predominantly property related. Sometimes you go a little off piece, but we don't mind that. And we do our very, very best to give you a good answer in return. We've done this over 500 times now, so we're well versed. But luckily, you always have a lot of questions. And we'll guide you now to the place you can go to ask some more.

0:29Rob D:Yep, it's just one destination, propertyhub.net slash ask. If you go there, you can leave us a question in written form for our Sunday Times column, or you can get yourself on the show and be the envy of all your friends by leaving us a voice note. Okay, let's hear our first question. Hi, Rob and Rob. It's Josh here from Suffolk. Thanks so much for all the free content you provided over the last couple of years. It's really helped me to understand the property market and build my portfolio to what it is today. I currently have six properties all within a limited company and it includes one holiday let and five buy-to-lets all following the BRR model.

1:04Rob D:The average loan-to-value of the portfolio is around 75 % which is spread across various lenders and has a severe valuation of around 2.1 million. I tend to use five-year fixed interest only mortgages but due to the economic uncertainty I wondered if lenders could demand repayment of the total mortgage before the end of the term even if I haven't missed any payments. Additionally if the property's value had fallen since the original valuation, when you came to refinance, could the lender refuse to move me onto a new mortgage product at the same LTV or would they require me to top up the mortgage?

1:38Rob D:I appreciate with inflation and housing demand, this is unlikely to happen, but wanted to map out the worst case scenarios due to the current economic climate. Thanks so much for taking the time to answer my questions and I look forward to listening to many more of your podcasts.

1:50Rob B:Hi Josh, thanks for your question. Let's put your mind at ease. the chances of that happening are very very close to zero. While probably not impossible I'm going to give it a 0.00 number. That's the chances of this happening and that's because I can speak from experience here because I've seen what you've described happen but in a very niche situation. Back in the last market boom, lots of people were borrowing, mortgaging to their hilt, massively over-leveraging themselves. And then when the market crashed, a lot of people were suddenly in negative equity. Now at this point, you would think, ah, I've got mortgages.

2:40Rob B:The value of those mortgages is more than the value of my property. Are the banks going to repossess? and some very niche commercial lenders decided to call in their loans. But the vast majority, the overwhelming majority did not, even though the properties were in negative equity and they could have said, hey, this doesn't stack as it used to. We want that property because they didn't want the property. Lenders don't want properties. They don't want to take them off you. What they want is to lend against them. Their business model is lending and being paid back on that debt and making a profit from that transaction.

3:25Rob B:They are not in the business of trying to acquire a portfolio. They don't look at a property and go, wait a minute, we could sell this and maybe make a bit more money. That's just not what they're in it for. If a lender wants to get out the market, they will sell their loan book and they are worth something and they are valuable and many lenders will build up a loan book and then sell it on but taking properties in and then putting them to auction which is what they do because they don't want to hold them and then running the risk of losing out further it's just not going to happen so while it has happened once before it was very very rare and under extreme circumstances we are very very far away from that market and you have spread your lending across multiple lenders and you've got healthy loans of values so josh i have close to absolute complete confidence that you have nothing to worry about but i'm sure you're not the only person who's ever thought about this so hopefully by answering your question has helped with us as well.

4:31Rob B:Thanks a lot.

4:32Rob D:Okay, let's hear our next question all the way from Hong Kong. Hi Rob and Rob, thanks for the great content. I have a question about deposits. I live in Hong Kong and I rent. Our rent increases every two years and whenever the landlord increases the rent, they also ask for a top-up on the deposit. And that got me thinking. I have five properties in the UK and I typically increase the rent each year, even if it's a small amount. However, I've never asked my tenants to top up the deposit. A couple of my tenants have been in their properties for four and five years respectively. I'd be grateful for your thoughts and advice on whether I should also be asking my tenants to top up their deposits at the same time as increasing the rent.

5:16Rob D:Many thanks. Luke, thank you for the question. And it's an interesting one. I can't believe this has never come up before, but it hasn't. The answer is you can do it either way. the logic of increasing the deposit makes sense in a way the point of the deposit is it covers you against damage and unpaid rent and given that the amount of rent they're supposed to be paying is going up then the potential amount of unpaid rent is also going up so if for example they skip the last month's rent then by increasing the deposit you are every bit as much covered as you were for that plus any damage that there is to cover and i suppose if someone's been in a property a really long time then inflation means that wherever the damages will cost more so you can see the argument and as a renter I have had this done to me.

5:57Rob D:My rent has gone up and then they've come back and asked for a bit more deposit which has always slightly irritated me but like I say I do see the point. As a landlord though I personally don't do it and the reason for that is mainly the reason that I gave from being on the other side of it. I find it a bit annoying and I don't really want to annoy tenants who I want to stay in place and have be happy. The potential for that plus the friction around it means that for me it's just not worth it. The difference in the deposit that it would be anyway given that the maximum you can take in England is five weeks rent isn't going to be massive so I personally just don't bother.

6:29Rob D:If you do do it then of course they should be paying it directly to the deposit scheme or you should be documenting it with the deposit scheme if you're using the insured service and there should be a clear paper trail because you don't want any uncertainty about how much deposit has been paid. But like I say personally I don't but maybe there'll be situations where someone has been in a property for a long time and you think it's the right thing to do in which case you absolutely can just make sure you do it properly.

6:52Rob B:So that's just done for another week. Thank you for listening. We'll be back with the main event, The Property Podcast, on Thursday. Until then, take care, have fun. Bye-bye.

7:00Rob D:Bye-bye.