Commercial borrowers “manipulated” in bank's £300m recall

Following the news in February that Yorkshire Bank was to call in over £300 million worth of commercial mortgages, B&C heard from a number of brokers, agents and independent borrowers who faced losing their homes, businesses or livelihoods…

Mr Broker works for a large mortgage brokerage in the North of England, which deals with a large number of borrowers, while Mr Landlord owns a large residential and commercial lettings agency, also in the North.

Both professionals reported that they had been ordered to repay a number of outstanding loans to Yorkshire Bank by the 30th April 2013.

Before the recession, both Mr Broker and Mr Landlord told B&C that Yorkshire Bank was “flying the flag for investing landlords”, offering LTVs in excess of 80 per cent and pushing borrowers into attractive deals which offered long terms, cheap rates and even bonus capital.

The bank would tell professional borrowers that it was the safest institution to borrow from, and that other institutions would pick up toxic debts in the future because of their unfavourable positions.

Eventually, the deals offered approached 100 per cent LTV for experienced landlords and developers.

Mr Landlord described how friends and close colleagues would offer slightly generous valuations and began to inflate the amount of money being lent, along with the effect of booming property prices in the North.

Since then, however, both businessmen have been pressured into signing new deals on shorter terms, and what were originally agreeable or even non-existent covenants on older, longer term deals were suddenly tightened, though with the assurance that such changes were either temporary or just a precautionary measure.

The bank has reportedly used the new covenants as backing for calling in the commercial debts, often with the explanation that borrowers have broken the agreements made.

In a number of cases the dwindling property market has meant that the loan to be repaid completely outstrips the maximum LTV agreed in the revised deal.

Moreover, interest-only facilities were changed into capital interest debts, often incurring far higher monthly interest charges which were unsustainable for professionals dealing with fixed rental incomes.

Mr Landlord describes one such loan, secured on a block of flats, increasing its rate from £5,000 per month to £13,000 per month.

At no point did the bank take into account the affordability of such changes for any of its borrowers, meaning that many of them – both professionally and personally – face insolvency.

Mr Broker added: “Liquidation doesn’t just mean that I’ll lose my business – I could well lose my credit licence and, thanks to an updated covenant, all the loans that I’ve co-signed with anyone could be recalled too.

“Any loan agreements made with any of my business partners can be recalled and, in turn, trigger their partners’ agreements too.”

Mr Landlord added: “There’s no sign of any limit, and there are at least 1,000 tenants here alone who are completely unaware that their home might become repossessed at any moment because Yorkshire Bank is recalling our loan.

“In the end, they’re incentivised to repackage these deals with massive fees.”

Mr Landlord told us that he was facing having to sell his entire portfolio of rental properties in order to fund the recalled mortgages.

He said: “Not only will I suffer a huge financial loss but I’ll be charged £500,000 of capital gains tax on the sales – when I went to Yorkshire Bank to ask for help, they told me that it was my problem and not theirs.

“In the end, Yorkshire Bank is taking away the vast majority of our livelihoods, and then some.”
 
Mr Broker told us about one bizarre case in which Yorkshire Bank is forcing him to sell a large rental property in order to pay back a recalled mortgage.

He agreed to sell the building to a business partner, whom he later discovered was borrowing a new mortgage from Yorkshire Bank in turn to fund its acquisition.

He pointed out that the way in which he and other borrowers are being treated is not in keeping with a responsible financial institution.

Mr Broker explained: “I have never missed a single payment on any of my mortgages, nor have I ever gone into arrears. My businesses – and those of my business partners – all turn a profit and, all in all, we’ve been ideal borrowers for Yorkshire Bank.

“In the end, it doesn’t matter. The bank will find everything we own and, if we can’t sell it, they’ll repossess it themselves.”

In spite of this, it has become almost impossible to contact the bank’s representatives, despite borrowers usually maintaining a strong personal connection with their account managers.

Mr Broker said: “You can’t speak to anyone any more. After having the same account manager for 12 years, I’ve had five different ones in the last month. Yorkshire Bank had 29 ‘business centres’ across the country, which would give out commercial lending advice - that disappeared overnight. You can’t help but wonder if they were opened just to be shut.

“We can only imagine that it’s part of the bank’s efforts to look like a more attractive proposition before NAB can sell up.”

The question remains, however, as to what those affected by Yorkshire and Clydesdale’s recalls can do to protect both their personal assets and those supporting their firms and businesses.