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BTL Mortgage Collar

The Buy-to-let mortgage collar – Will landlords be collared?

The only upside for landlords in this slumping housing market is that BTL mortgage interest rates are also going the same way. The Bank of England base rate is now at 3% a historic low.

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Buy-to-let mortgage rates to fall this week

BTL Mortgage Rates could fall even further this week when the Bank of England Monetary Committee meet to decide on the future Bank of England Base Rate. However, following the announcement by the Nationwide last week that they will not pass on further base rate reductions, suddenly a landlord’s only silver lining may also be disappearing in the haze. This is because a buy-to-let mortgage lender invokes the so called buy-to-let mortgage collar. This is where a mortgage lender places a limit below which they will not reduce the buy-to-let mortgage rate below, despite further reductions in the base rate.

Buy-to-let mortgage collar to stop further falls in buy-to-let mortgage rates

This news immediately sent me scurrying to investigate my recent buy-to-let mortgage with The Mortgage Works a subsidiary of the Nationwide to see whether there was any mention of a buy-to-let mortgage collar. Close inspection of the KIF (Key Facts Illustration) had no reference of a mortgage collar. However, not trusting the paper work or more accurately my ability to find and interpret the fine print I decided to give The Mortgage Works a call. I was greeted by a very welcome announcement by the cheery assistant. Apparently despite the fact that The Mortgage Works is owned by the Nationwide none of their products have a buy-to-let mortgage collar.

Therefore landlords need to check their buy-to-let mortgage agreements very carefully over the next few days because with the base rate potentially coming down by another 0.5%, and in light of the Nationwide BS’s announcement, many buy-to-let lenders are approaching a mortgage rate where any buy-to-let mortgage collar could be invoked.

Recent FSA ruling on mortgage collars in mortgage agreements

A recent ruling by the Financial Services Authority (FSA) over when potentially a buy-to-let lender could implement a buy-to-let mortgage collar at the beginning of December should provide some comfort to landlords.

The Halifax made an attempt at the beginning of December to invoke the mortgage collar provision. However, following protests by borrowers the FSA ruled that because the Halifax removed any mention of the mortgage collar from their Key Facts Illustration (KFI) in 2005 they ran the risk of both breaching the FSA disclosure requirements and having an unfair contract term that they cannot enforce. The result was that the Halifax decided to back down from invoking the mortgage collar clause affecting an estimated 550,000 Halifax borrowers on tracker mortgages.

This means that even where a landlord may have a collar attached to their buy-to-let tracker mortgage, if the buy-to-let lender has not included it in the KFI or specified clearly when the buy-to-let mortgage collar ‘kicks in’; then a landlord could still potentially reverse any decision by appealing to the FSA.

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