Dispute with Mortgage Lender over project?

[John Cain]

We got planning permission and then went on with a building project, paying out of our savings for the work, no financing was needed for this part.

 

But.. soon after we started, our main mortgage lender called me saying this was against the terms of our mortgage, we should've informed them about plans etc and that mailing would soon follow. 

 

Of course I'm shaken, stupidly I didn't realise this was going to be a problem, assuming for a second I succeed in my building plan, the lender will have a more valuable property shortly? What's their actual loss here?

 

Anyone have experience here, on what to expect? Surely they can't kick us out for attempting to improve our (their? our shared?) property? Can they fine us? Withhold the deposit? Try to sell the house (err... in its current state..) No mention of what they'll do in this situation in the contract, since we've been paying the mortgage just fine.

 

I guess we'll have to employ a sollicitor if we have to but just hoping to get a few insights to prepare us..

 

Thanks!

Edited May 13, 2019 by John Cain

[Temp]

Many mortgages have a condition requiring you to get their permission before undertaking building work but many people either didn't read the small print or forget.

 

Look at it from their point of view.. You don't say what the building work is but for the duration of the work the value of the property is likely to be affected and what if you died during construction or the builder ran off with your money of you went bust and had to stop work. There are a lot of extra risks for the lender during construction work and they worry about the value of the asset they have as security for the mortgage.

 

Does your home insurance cover the house while building work is underway? Not all policies do. 

 

Check the T&C's and write back to apologise and requesting permission. If possible include an estimate of the likely finished valuation from an estate agent. Also a copy of your builders insurance and an estimated completion date. That's all I can suggest.

 

[Temp]

They cannot "fine" you but they could in theory call in the mortgage eg ask you to remortgage which you might find hard to do at the current stage.

 

Some lenders won't lend on what they see as a "development", so is this just an extension or have you knocked the whole place down?

 

If just an extension I think it's unlikely they would push for repayment as they might not get their money back after a forced sale. Perhaps try for a meeting to discuss the way forward. 

[ProDave]

I take it this is not a new build but an extension?  In which case with an existing mortgage you should have got the permission from the lender to start the work.

 

This is exactly what we did with a former house, got the mortgage lenders permission, and an extra bit added to the mortgage to cover the costs of the extension.

 

You need to talk to them ASAP to find a way to "regularise" the situation, don't just ignore it.

 

Start with the groveling / I did not know the rules tack rather than being confrontational, and present your plan to complete the work with a realistic timetable and a realistic idea of the finished value after the work.

[Mr Punter]

I am intrigued that the lender got wind of what was going on.  Any ideas how, @John Cain?

[John Cain]

Not quite knocked the place down but it's a pretty serious renovation/extension, so in the end 'most' of the place will be all new.

1 hour ago, Temp said:

They cannot "fine" you

Are you sure? Of course at this point I read through their fine print and nothing too explicit that I think applies.

 

But they can't (shiver) take us to court? 

 

1 hour ago, Temp said:

 

but they could in theory call in the mortgage eg ask you to remortgage which you might find hard to do at the current stage.

 

Remortgage with them, you mean? 

 

Or do you mean they basically demanding I repay everything within a certain super short period of time and then see if I can find a mortgage team willing to talk to us halfway through a mortgage? Clearly that sounds complex but I don't necessarily see why people would not want to do this, the place was old and poor, so the bulk of the value really was the plot anyway. What do you figure will be hard (other than that I would have a certain 'desperate' quality). 

 

I assume the mortgage will be unfriendlier but do you think they'll make it extortionate? 

 

Yes, will def. chat with them soon, just trying to get to that meeting not completely unprepared so thank you for your thoughts so far.

 

@Mr Punter: I can't really see anyone benefiting from telling the lender (without at least chatting with me first?) .. perhaps it was the neighbours, although they seem friendly enough, they were ok with the plans when we told them, and regardless I don't know how they could've found out which lender we used..

 

All I can think of is the lender themselves doing spot checks? Not sure why they would even care as long as I keep paying the mortgage as normal. I guess @Temp and @ProDave explained a bit what I hadn't thought of - the risk that I would fail, leaving the value lower, but still, again the current house is really only a fraction of the total property value....

Edited May 13, 2019 by John Cain

[Moonshine]

17 minutes ago, John Cain said:

I don't know how they could've found out which lender we used.

 

One way is pay a small fee to the land registry for your title register, and that will have details of the lender on it. But for someone to do that they have to be very determined to drop you in it.

Edited May 13, 2019 by Moonshine

[Vijay]

I think I'm right in saying (and I could well be very wrong), but you don't actually own your property when when there's a charge on it from a mortgage lender until the loan is paid in full. So from their point of view, you've ripped down their property :O lol

[John Cain]

24 minutes ago, Vijay said:

I think I'm right in saying (and I could well be very wrong), but you don't actually own your property when when there's a charge on it from a mortgage lender until the loan is paid in full. So from their point of view, you've ripped down their property :O lol

 

Um. I do hope you're wrong. 

 

I don't think this is so black and white, where until the very last pound repaid, they can do anything they want including kick us out etc. 

Seems to me bank+us are "co-owners", where the bank does have more power, since they wrote the contract, but we aren't completely at their mercy, there always has some point of 'reasonable balance' between parties?

 

And given that like I said the current house is only a small part of the property value I would hope that yes I damaged their property somewhat (with good intentions.. they count a bit hopefully?), and maybe I took 10% off the total value, but assuming I don't fail I'd add like 50% extra value....  I don't think they can claim we cost them anything near the entire value of the property.. 

 

Also - would the bank benefit in trying to now sell the plot of land immediately, and get back only part of the money? Hopefully they also would just want to work this out, or should I brace myself for much more severe steps?

Edited May 13, 2019 by John Cain

[Mr Punter]

If you are able to pay for the rest of the work without needing to borrow further funds, You have fixed price costings, you are using contractors who are experienced in delivery such projects, you have a programme of works with a fixed end date and you can demonstrate this to your lender, then as long as you continue to make payments you may be OK.

 

Put your evidence to them clearly and professionally, as you may need to rely on it in court should they seek possession.

[Vijay]

Maybe as already said, the lender needs to know your intentions in full details. The fact that you're sinking your own money into it will hopefully set them at ease a little as you have just as much to lose if anything were to go wrong.

[John Cain]

@Mr Punter Yeah I don't think this is a deeply financial issue. Assuming I can keep my current mortgage (perhaps at a steeper but not insane interest), we should be able to afford everything without a second mortgage etc. As far as I can tell the main issue is I might have violated contract terms and perhaps done some temporary damages to their "investment" and/or increased their risk.

[K78]

If you give them a clear date works will be finished, have a bco overseeing the work and don’t need additional funding I think you will be ok.

 

If you need additional funding, or if the work will take months. It could be a big issue. 

 

I would get the work finished ASAP. 

Edited May 13, 2019 by K78

[K78]

25 minutes ago, John Cain said:

@Mr Punter Yeah I don't think this is a deeply financial issue. Assuming I can keep my current mortgage (perhaps at a steeper but not insane interest), we should be able to afford everything without a second mortgage etc. As far as I can tell the main issue is I might have violated contract terms and perhaps done some temporary damages to their "investment" and/or increased their risk.

 

If you were to be repossessed the house could be un mortgageable, hence the value would be massively reduced. 

[John Cain]

25 minutes ago, K78 said:

 

If you were to be repossessed the house could be un mortgageable, hence the value would be massively reduced. 

So it's in the bank's interest to get this done successfully, no?

 

28 minutes ago, K78 said:

If you give them a clear date works will be finished, have a bco overseeing the work and don’t need additional funding I think you will be ok.

 

If you need additional funding, or if the work will take months. It could be a big issue. 

 

No funds, but it will take some time.. if I do everything I wanted to do (and improve the place) it'll be months. I suppose if I literally try to restore to as-close-to-original as I can I guess it can be faster, but no idea, do I have to go back to planning? Redesign?

 

Why do you figure the time is an issue, if I can 'reasonably' show that we're well prepared (financially and planning wise) to get this finished?

Edited May 13, 2019 by John Cain

[Jeremy Harris]

Looking at it from the lender's perspective, they will be concerned about the risk if there is an adverse event.  They have no guarantee that the work will be completed, and until it is completed the value of their asset has been seriously depreciated by being partially demolished.  The fact that you intend the work to be completed in a few months time is neither here nor there; they will be concerned that, right now, they are exposed to a risk that they knew nothing about.

 

Worth noting that they probably have very little knowledge about what you're actually doing, so they may well be working on the worst case assumption.

[John Cain]

3 minutes ago, JSHarris said:

Looking at it from the lender's perspective, they will be concerned about the risk if there is an adverse event.  They have no guarantee that the work will be completed, and until it is completed the value of their asset has been seriously depreciated by being partially demolished.  The fact that you intend the work to be completed in a few months time is neither here nor there; they will be concerned that, right now, they are exposed to a risk that they knew nothing about.

 

Worth noting that they probably have very little knowledge about what you're actually doing, so they may well be working on the worst case assumption.

Thanks.. to be clear yes I screwed up and intend to fix it immediately. 

 

Still though, IMHO the bulk of the value is in the plot, the house was terrible (ok you'll be dry in it, but bad design, neglected), but the location is great. Recently, a similar plot without a house was sold for pretty much the same price as my full price. I know valuation is an arcane art but I don't think I killed more than 10% of the total value. (an amount I could even literally pay back right now if I really had to..)

[Oz07]

What's your ltv? Hope it's not high

[John Cain]

1 hour ago, Oz07 said:

What's your ltv? Hope it's not high

 

60% - not too terrible...

[newhome]

I wouldn't worry too much TBH. I'm bemused about how they found out but I don't think they will do much.

 

They will not want you to do something that might devalue the property, for example turning a 4 bed home into a 2 bed but if you are adding value I don't think they will do a lot. They probably just want to know what you are doing and how you are financing it as they won't want another secured loan on the property (you're not doing that anyway).

 

Out of interest I picked a lender at random and looked for information that would explain that you needed to tell the lender if you were renovating the property. I simply couldn't find it on the website. If it is there it's not obvious. So firstly I would have a look at your lender's website and try to find that info. If it's not on the website use that in your defence. It may well be in the very small print in your mortgage pack but TBH not that many people read the small print. 

 

I also stumbled across this 'guide' from Barclays 

 

Barclays Home Improvement Guide

 

Rather amusingly under section 5 'get permissions' it doesn't mention getting permission from the mortgage lender 

 

They will absolutely not repossess your property if you are paying the mortgage. When you buy a property you own the property, not the lender, however the lender will have a financial claim on it until you pay off the debt. If you are paying the mortgage they will not repossess the property, and indeed they cannot decide to do that anyway, only a court can decide that and there is zero chance that a court will issue a repossession order if you are paying the mortgage. So apologise, explain that you are adding value to a house in very poor condition, and I reckon you will be ok, especially if your LTV is only 60%. Do check out your insurance however as not many 'normal' insurance policies will cover extensive renovation work so you may be uninsured at present. 

 

[John Cain]

57 minutes ago, newhome said:

I wouldn't worry too much TBH. I'm bemused about how they found out but I don't think they will do much.

 

They will not want you to do something that might devalue the property, for example turning a 4 bed home into a 2 bed but if you are adding value I don't think they will do a lot. They probably just want to know what you are doing and how you are financing it as they won't want another secured loan on the property (you're not doing that anyway).

 

I hope you're right. It's been a super helpful discussion so far, I guess prepare for the worst but it feels I didn't do anything that bad.. but quite worried that somehow contractually/legally it could turn out to be a problem.

 

57 minutes ago, newhome said:

 

Out of interest I picked a lender at random and looked for information that would explain that you needed to tell the lender if you were renovating the property. I simply couldn't find it on the website. If it is there it's not obvious. So firstly I would have a look at your lender's website and try to find that info. If it's not on the website use that in your defence. It may well be in the very small print in your mortgage pack but TBH not that many people read the small print. 

 

I also stumbled across this 'guide' from Barclays 

 

Barclays Home Improvement Guide

 

Rather amusingly under section 5 'get permissions' it doesn't mention getting permission from the mortgage lender 

 

Yeah the wording on the full materials is vague, and their internet site mentions nothing at all around this situation. 

 

57 minutes ago, newhome said:

They will absolutely not repossess your property if you are paying the mortgage. When you buy a property you own the property, not the lender, however the lender will have a financial claim on it until you pay off the debt. If you are paying the mortgage they will not repossess the property, and indeed they cannot decide to do that anyway, only a court can decide that and there is zero chance that a court will issue a repossession order if you are paying the mortgage. So apologise, explain that you are adding value to a house in very poor condition, and I reckon you will be ok, especially if your LTV is only 60%.

Hopefully. Let's see what they say, I guess they don't want you to do this for a reason, I'm all paranoid now so now I'm worrying they might want to make me an example and go after me anyway... but ok realistically they just want this to get sorted, hopefully

 

But yeah most of the responses here sound like the bank wouldn't (be able to?) do something too dramatic like kick us out, repossess or apply a massive fine for me breaking the agreement without going to court, and I hope the courts in general would insist on fair fees/fines, based on the actual amount of loss the bank incurred,  which isn't *that* much, I hope.

57 minutes ago, newhome said:

 

Do check out your insurance however as not many 'normal' insurance policies will cover extensive renovation work so you may be uninsured at present. 

 

Try to not make it all catch fire. Check.

 

But indeed I hope/think/assume I insured all of this properly... will check.. good shout.

[newhome]

12 hours ago, John Cain said:

Hopefully. Let's see what they say, I guess they don't want you to do this for a reason, I'm all paranoid now so now I'm worrying they might want to make me an example and go after me anyway... but ok realistically they just want this to get sorted, hopefully

 

They will probably want a fee (ain’t that always the case!) to assess the work you are doing and ensure that the end value still covers their loan. 

 

Please report back what they say to help others who find themselves in a similar position. 

[John Cain]

7 hours ago, newhome said:

 

Report back what they say to help others who find themselves in a similar position. 

 

Will try.

 

Does anyone know what I might need to remortgage mid-build like @Temp suggested? Is it:

- Pay back my current lender by starting a mortgage with a different lender

or

- Start a new mortgage with current lender, under less favourable terms, presumably

 

or something else? Current mortgage is 5y fixed + offset.

 

And in that case, what would a lender (new or current) look for, will I be pressured into a very unfavourable conditions since I'm in a hurry? Effectively "at this stage" the lender would almost be lending against a plot of land with a worthless shack on top, but on the flipside the only money I really need is my that mortgage amount,  perhaps with an increased but not crazy LTV (70% perhaps?), the build itself is hopefully covered with our savings. 

 

How would I prepare for that discussion, what to expect, what evidence (a few people already suggested building plans, cost estimates etc.. anything else?)

 

Edited May 14, 2019 by John Cain

[newhome]

29 minutes ago, John Cain said:

How would I prepare for that discussion, what to expect, what evidence (a few people already suggested building plans, cost estimates etc.. anything else?)

 

Given the circumstances I wouldn’t bother to cross that bridge just now as you don’t really have a house to lend against per se. Wait until you know what your mortgage lender wants and try to work with them. 

 

[John Cain]

1 minute ago, newhome said:

 

Given the circumstances I wouldn’t bother to cross that bridge just now as you don’t really have a house to lend against per se. Wait until you know what your mortgage lender wants and try to work with them. 

 

Eh, I'm one of those pre-planners, so if it's a good idea to start collecting a bit of data it makes me sleep easier at night.. (hopefully better than last night.. sigh)

 

And regardless, it does seem logical that the lender would at least move me onto a mortgage that reflects the - temporarily - increased risk, lower value?

Edited May 14, 2019 by John Cain