Families are exhausting all their savings to pay sky-high mortgages on homes they are not even living in and cannot sell because of unsafe cladding.
At the start of August, the Bank of England raised the base interest rate for the 14th consecutive time to a 15-year high of 5.25 per cent.
For homeowners on tracker mortgages, about eight per cent of customers, payments rose immediately.
Customers with standard variable rate mortgages also saw their repayments go up. Although these deals do not have to follow the Bank of England interest rate, they typically do.
Analysts expect August’s rate raise will not be the last of 2023 as the Bank of England continues to act to bring down inflation.
The prospect of yet another increase before the year is out is worrying to many whose mortgages rise with the interest rates, especially those who cannot get rid of properties they own due to fire safety issues.
Jamie Donaghey, 39, and his wife have been trying to sell a two-bed flat he bought in Lewisham, southeast London, in 2014 for around four years.
They are on a tracker mortgage deal with Nationwide as they had hoped to be able to sell or re-mortgage the flat in good time.
But these plans have been interrupted ever since hazardous cladding was discovered on their block. A promising sale fell through because of the building’s EWS1 B2 rating, which means the property lacks an adequate standard of fire safety.
The solicitor said he is now “forever watching the Bank of England rate increase and wondering when this will all end”.
Mr Donaghey told i: “We never intended to become landlords and the only reason we are renting out our flat is because we have been blocked from selling it for the last four years.”
Since December 2021 he has seen his mortgage rate increase from 2.69 per cent to 7.19 per cent. His lender is also charging him additional one per cent Consent to Let fee.
His current mortgage repayments are £2,183 a month but following the Bank rate rise it is set to increase to £2,233 a month from September.
Mr Donaghey, his wife and their two children, aged six and three, moved out of the problematic flat due to space constraints and they took out a fixed-rate mortgage on a separate home in Hertfordshire, something they were only able to do with assistance from relatives.
“It was just through a lot of help and support from family basically, who have given us life savings to help us,” Mr Donaghey said.
Although the spike in interest rates means the mortgage on the property they are not living in will rise significantly, Mr Donaghey is not passing on that cost to his tenants.
“We’re not going to do that. We’ve got a fixed contract with the tenants for 12 months, so we can’t raise the rent. So it just means we’re basically losing money on the flat.
“We’ve definitely had to make cutbacks in everyday life on shopping and going out and holidays and stuff like that, because, one, it’s a big increase in the mortgage in 12-18 months, but also, there’s just no certainty about when it’s going to end, when we can actually remortgage or when we can sell.”
Mr Donaghey attempted to remortgage the cladding affected flat with a new lender in June but despite passing all the borrower affordability checks, he was refused because the bank would not lend on buy-to-let properties with cladding issues.
The property developers have confirmed they will cover the costs of the remedial measures but, nine months on, the works have not progressed.
“It’s just that feeling of being trapped and not having any options and not being able to sell not being able to remortgage,” Mr Donaghey said. “It’s just going to be a very tight period for us as a family until we have that freedom.”
A Nationwide spokesperson said: “We understand the challenges borrowers affected by cladding can face, including when trying to sell their homes, and have a longstanding policy of making exceptions to our standard letting rules for such members once aware of their situation. While we have not been provided details of the customer, we would be happy to look into their specific case.
“More generally, Nationwide will lend to leaseholders living in properties impacted by cladding, where those properties are covered by the government or developer remediation schemes – subject to our normal lending policy and checks. As a responsible lender, we would also need assurance that there are adequate interim safety measures in place until the remediation is complete.”
‘We both worked extremely hard and now we don’t even have a home to live in’
Former Wales footballer Brian Law, 53, owns a three-bed penthouse in Birmingham, located walking distance from the financial district.
He retired from his career in professional football, which included stints at Wolves, QPR, and Millwall, in his 30s and hoped his savings would help see him through, but in 2019 he was informed that he would be required to pay £38,000 for cladding replacement works.
“I said, ‘surely that’s a mistake’,” he told i.
He immediately sought to sell the property and in the interim the family spent some time renting on a farm while works were carried out on the flat – but after the first potential buyer fell through, they ended up worse off.
Mr Law said: “We just exhausted all are savings because we just didn’t didn’t know which way to move, which way to progress. Also, the rental market is extreme. There’s 10 people turning up at properties, they’re way overpriced. We have three children so we’re limited in what we can look at.”
He said his repayments on the variable tracker mortgage shot up from around £500 a month to over £2,000 a month after a combination of interest rate rises and charges for cladding remedial work costs.
“I said ‘I’m not paying £38,000 for this cladding, surely you can get the funding from somewhere’,” Mr Law said. “So they go direct to the mortgage companies, the mortgage provider pays the service charge, pays the £38,000 but then they add compound interest in my loan.
“We are being hit by [the rate rise], it’s going up every time they put it up, it’s gone up seven times already,” he added.
Like Mr Donaghey, Mr Law is forced to pay the mortgage on a property he is no longer living in. His family now rent a three-bed semi-detached house from a family member and he fears the penthouse will be repossessed.
“We might not even be able to buy our own property now if the money isn’t released from this property,” Mr Law said.
“We both worked extremely hard and now we don’t even have a home to live in, it’s crazy.
“My wife’s on a good wage, we have a good income, but it’s impossible for us to move forward.”
Giles Grover, co-leader of End Our Cladding Scandal campaign group in Manchester, is familiar with stories like these.
In July, a survey of around 800 of the group’s leaseholders found 75 per cent of respondents had not tried to remortgage or sell their properties as the process for cladding affected flats is “not fit for purpose”. The majority of those who had tried to remortgage or sell to a buyer who needs a mortgage said they had been unable to do so (80 per cent).
Mr Grover said lenders were not fulfilling their pledge to lend to customers in the case of cladding affected properties.
“In reality, it’s kind of a very mixed picture,” he said. “It’s not really happening. People should be able to get remortgages with their same banks, but again, that’s not guaranteed. And ultimately, there’s a lot of people facing issues trying to sell.
“The Government say, ‘oh, we’re trying to do all we can’, but they should have a lot more a lot sooner – and if they provided this certainty to all leaseholders that they will be protected, rather than just some of them, then confidence would likely return to the market.”
A Department for Levelling Up, Housing and Communities spokesperson said: “It is absolutely unacceptable for anyone to have to live in an unsafe building and residents’ safety and wellbeing should always be the utmost priority for building owners.
“This Government has taken significant steps to make buildings safe and to make sure those responsible pay, with almost 50 of the country’s largest developers agreeing to fix their own buildings through our developer contract. Signatories must now get on with fixing the buildings they are responsible for urgently and safely.
“We continue to pursue wrongdoers and those who fail their leaseholders and tenants, and we are working with lenders and insurers to make sure leaseholders are treated fairly and have the peace of mind they deserve.”