‘Danger of lenders going bust’ in cladding cash crisis

‘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 may go bust as hundreds of thousands of flats are 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.

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 in England is ‘below the amount required’ and expects property values ‘to be severely affected for several years’. The PRA is said to be concerned over the issue and is ‘disappointed’ at a lack of government data.

The Government has tripled its cladding fund since the Mail launched its campaign to end the scandal in January.

But hundreds of thousands of families face bills of up to £600 a year, while all affected leaseholders face average costs of £25,600 each to fix non-cladding related defects. It is feared unaffordable bills will cause borrowers to default on mortgages.

Affected properties are currently unsaleable, or go 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. A lack of data means banks are finding it tricky to see how many firetrap flats are on their books.