Bank wants to double my commercial mortgage interest rate – without agreement.

[BrianR]

I am completely new to CAG and therefore apologise in advance for any transgressions or mistakes in protocol.

 

I own land which I have been developing over the past few years. Secured on the land are 2 commercial/agricultural mortgages (circa £340K), and an overdraft facility (circa £40K).

 

Having opened the business in the middle of last year, I asked the bank in September 2012 to provide a capital repayment holiday on the mortgages – as the income generated was lower than originally projected and expected, and I could see payment shortfalls looming.

 

The response from the bank was that they wanted to see an updated RICS valuation, and this I asked them to initiate with urgency. Internal bank delays followed and it was not until February 2013 that they were in receipt of the updated RICS valuation. Suffice to say the valuation came in bang on target!

 

After yet another 2 months of delay, the bank eventually increased the overdraft by £15K, of which £10K was immediately snagged back to cover the mortgage payments shortfall which had occurred (as I had already predicted) in the interim period from my initial request.

 

However, from communications received from the bank it now appears that for the benefit of the (net) £5K cash influx, they intend to raise the interest rate on the ENTIRE debt from 2% over base to 4% over base.

 

To say I am aggrieved is an understatement, but before I commence battle I would appreciate any constructive comments from anybody who feels they can provide helpful input.

 

Brian.

Edited September 19, 2013 by slick132
spaced it out - easier to read

[slick132]

Hi BrianR and welcome to CAG

 

Sorry if this is a daft question but have you checked, or are you aware, that the bank can unilaterally vary the interest rate in this manner.

 

How healthy is the loan to value ratio between the borrowings and the RICS valuation, in general terms.

 

[BrianR]

Hi there slick132.

Thank you for the response, it is very much appreciated.

To open I would simply say that "no questions are daft" they are simple expressions for more understanding!!!!

 

To answer your 2 questions in order;

 

1a. I am not sure if the bank has built in clauses in the loan agreement to allow them to unilaterally vary the interest rate (i.e. documents not to hand, and I am also unsure that I could necessarily correctly and legally interpret some vague reference to "clause 123 in para 947, on page 69 - written in cryptic script which can only be read when placed in front of a mirror"!!!). It was my assumption that when agreeing the overall interest rate as "XXX over the bank base rate" my exposure to rate increase which is beyond base rate was locked down.

1b. The bank in question is a UK high street bank (signified by a large eagle, or is in a griffin or a vulture?, on a blue background!). and I assumed perhaps naively I was dealing with them within their standard T&C's).

 

2. When we turn to the matter of the health of the LTV ration, I will advise as follows - total borrowings from the bank (as of this moment) are £380.8K. The RICS valuation as current is £487.5K. In my simplistic understanding this is an LTV ratio of 78%.

 

Hopefully that provides further data to allow you learned people to kick in and assist.

 

Cheers,

Brian.

[slick132]

Hi Brian and thanks for the info.

 

If you have a copy of the loan agreement, it would be worth having a quick skim through to see if they are allowed to increase the interest rates when they feel like it. I note you mention a hike from 2% to 4% over base rate but what is the base rate they refer to.

 

Re the loan to value ratio, I was not so interested in an exact figure, as in knowing how the loan compares to the value generally - ie how close the loan is to the value of the land.

 

It is not unreasonable of the bank to be watching their possible exposure, or indeed to raise the interest rate if the loan to value changes to their detriment. But the bank has a clear duty imposed on it to treat you fairly under the BCOB Regulations. Click on the link to read more about this.

 

Can you confirm approx the new interest rate so we can consider this further. Also let us know if you have the loan agreement available to read.

 

Finally, I assume you're looking to increase the value of the assets over time. Is this a long medium or short term project. The bank will be mindful of how fast the project moves, with a view to you selling on and being able to settle the loan.