The families trapped on sky-high loans in cladded homes they can’t sell
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 Augustâs 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 buildingâs EWS1 B2 rating, which means the property lacks an adequate standard of fire safety.
The solicitor said he is now âforever watching the Bank of England rate increase and wondering when this will all endâ.
Mr Donaghey told i: âWe 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.â
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 ÂŁ2,183 a month but following the Bank rate rise it is set to increase to ÂŁ2,233 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.
âIt was just through a lot of help and support from family basically, who have given us life savings to help us,â 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.
âWeâre not going to do that. Weâve got a fixed contract with the tenants for 12 months, so we canât raise the rent. So it just means weâre basically losing money on the flat.
âWeâve definitely had to make cutbacks in everyday life on shopping and going out and holidays and stuff like that, because, one, itâs a big increase in the mortgage in 12-18 months, but also, thereâs just no certainty about when itâs going to end, when we can actually remortgage or when we can sell.â
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.
âItâs just that feeling of being trapped and not having any options and not being able to sell not being able to remortgage,â Mr Donaghey said. âItâs just going to be a very tight period for us as a family until we have that freedom.â
A Nationwide spokesperson said: âWe 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.
âMore generally, Nationwide will lend to leaseholders living in properties impacted by cladding, where those properties are covered by the government or developer remediation schemes â 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.â
âWe both worked extremely hard and now we donât even have a home to live inâ
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 ÂŁ38,000 for cladding replacement works.
âI said, âsurely thatâs a mistakeâ,â 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 â but after the first potential buyer fell through, they ended up worse off.
Mr Law said: âWe just exhausted all are savings because we just didnât didnât know which way to move, which way to progress. Also, the rental market is extreme. Thereâs 10 people turning up at properties, theyâre way overpriced. We have three children so weâre limited in what we can look at.â
He said his repayments on the variable tracker mortgage shot up from around ÂŁ500 a month to over ÂŁ2,000 a month after a combination of interest rate rises and charges for cladding remedial work costs.
âI said âIâm not paying ÂŁ38,000 for this cladding, surely you can get the funding from somewhereâ,â Mr Law said. âSo they go direct to the mortgage companies, the mortgage provider pays the service charge, pays the ÂŁ38,000 but then they add compound interest in my loan.
âWe are being hit by [the rate rise], itâs going up every time they put it up, itâs gone up seven times already,â 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.
âWe might not even be able to buy our own property now if the money isnât released from this property,â Mr Law said.
âWe both worked extremely hard and now we donât even have a home to live in, itâs crazy.
âMy wifeâs on a good wage, we have a good income, but itâs impossible for us to move forward.â
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 groupâs leaseholders found 75 per cent of respondents had not tried to remortgage or sell their properties as the process for cladding affected flats is ânot fit for purposeâ. 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.
âIn reality, itâs kind of a very mixed picture,â he said. âItâs not really happening. People should be able to get remortgages with their same banks, but again, thatâs not guaranteed. And ultimately, thereâs a lot of people facing issues trying to sell.
âThe Government say, âoh, weâre trying to do all we canâ, but they should have a lot more a lot sooner â 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.â
A Department for Levelling Up, Housing and Communities spokesperson said: âIt is absolutely unacceptable for anyone to have to live in an unsafe building and residentsâ safety and wellbeing should always be the utmost priority for building owners.
âThis Government has taken significant steps to make buildings safe and to make sure those responsible pay, with almost 50 of the countryâs 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.
âWe 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.â