According to the Daily Mail, lenders are being instructed by The Bank of England to protect large sums of money in case victims of cladding default on their mortgages.
As hundreds of thousands more flats remain unsold, officials are concerned that the lenders will go bankrupt. Leaseholders also need to be prepared for an influx of bankruptcy filings.
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.
Bank of England tells lenders that they will ring-fence large amounts in the event of mortgage defaults by cladding victims
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.
The fear is that borrowers will default on their mortgages due to unfeasible bills, which could lead to the loss of capital lenders have set aside for 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
The properties affected are not currently available to the public or may be offered for cash at great discounts.
According to the charity Leasehold Knowledge Partnership, many leaseholders resort to auctions and accept bids up to a third market value.
Due to insufficient information, banks have difficulty finding out how many flats with fire-traps they hold.
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.