Lenders could go bust in cladding crisis if victims caught in fire-trap homes default on mortgages, Bank of England fears
- Officials worry lenders may go bust as hundreds of thousands of flats unsaleable
- Bank’s Prudential Regulation Authority (PRA) to review exposure to unsafe flats
- Lloyds set aside £105million and already seeing evidence of ‘higher arrears’
The Bank of England is telling lenders to ring-fence vast sums in case cladding victims default on mortgages, the Daily Mail can reveal.
Officials are worried lenders could go bust as hundreds of thousands of flats are still unsaleable and leaseholders brace for a flood of bankruptcies.
It has prompted the Bank’s Prudential Regulation Authority (PRA) to review exposure to unsafe flats and ask lenders to make provisions in case of defaults, according to a source familiar with the matter.
The Bank of England is telling lenders to ring-fence vast sums in case cladding victims default on mortgages
Lloyds has set aside £105million for the problem and warned it is already seeing evidence of ‘higher arrears’
It is the Bank’s first major intervention over the issue. Lloyds has set aside £105million for the problem and warned it is already seeing evidence of ‘higher arrears’.
Nationwide is the first lender to say the Government’s £5billion fund to replace unsafe cladding is ‘below the amount required’ to end the scandal and expects property values ‘to be severely affected for several years’.
The PRA is said to be concerned at the scale of the issue and is ‘disappointed’ at a lack of government data.
The Government has tripled its cladding fund to £5billion since the Mail launched its campaign to end the scandal in January.
But hundreds of thousands of families living in smaller blocks face bills of up to £600 a year, while all affected leaseholders still face average costs of £25,600 each to fix non-cladding related defects.
Robert Jenrick, who was sacked as housing secretary last month, said he had ‘fought a battle’ with the Treasury to secure more money for leaseholders but it was ‘unwilling’ to spend more to resolve the issue.
It is feared unaffordable bills will cause borrowers to default on their mortgages, eroding capital lenders have set aside to absorb losses.
Nationwide is the first lender to say the Government’s £5billion fund to replace unsafe cladding is ‘below the amount required’ to end the scandal
It has prompted the Bank’s Prudential Regulation Authority (PRA) to review exposure to unsafe flats and ask lenders to make provisions in case of defaults, according to a source familiar with the matter
Affected properties are currently unsaleable, or can only be sold to cash buyers at huge discounts.
Leaseholders are resorting to auctions, with many accepting bids at a third of market value, according to charity Leasehold Knowledge Partnership (LKP).
Banks are struggling to work out how many fire-trap flats are on their books due to insufficient data.
Nationwide said in its annual report that it has ‘assumed’ its exposure is in line with UK market ‘estimates’.
Lloyds also noted ‘weaker sales values’ in affected flats and has doubled its provisions within six months.
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