‘My mortgage has jumped – I may lose my buy-to-let’

The most financially stretched homeowners in Britain will be the first to be hit by the Bank of England’s decision to raise the Bank Rate to 0.25pc.

Leaseholders who have been pushed onto standard variable rate mortgages because they are trapped by the cladding scandal will immediately feel the burn from increased mortgage costs.

Sarah Holland, 48, bought a £245,000 flat in Barking, east London, as a buy-to-let investment three years ago. When her two- year fixed- rate expired in July 2020, she was unable to remortgage with a different provider because the property has not had an external wall safety assessment.

Instead, she had to stick with her original lender, who pushed her onto a standard variable rate. Her monthly mortgage payments increased from £ 1,100 per month to £ 1,300 per month.

Meanwhile, she had to reduce the rent by £200 per month because of falling city rental demand during the pandemic. In a painful mirror image, Ms Holland’s monthly income on the property has fallen from £ 1,300 to £1,100.

Including management costs, ground rent and insurance, Ms Holland is now losing £500 per month on the flat. “I can’t sell because it is valued at £0. I can’t do anything,” she said.

“It is my only buy-to-let. I bought it for some security for the future, and for retirement. Now it is costing me money that I hadn’t foreseen. I have had sleepless nights about it. I can cover it for now, but it is a worry because if rates go up and up, I have got to find the money. I have had to personally guarantee the mortgage. That means that if I default, they could come and take my home.”

Most homeowners will initially be protected from Bank Rate rises because of their fixed-rate terms. But 2.2 million borrowers with tracker or SVR mortgages will feel the effects almost immediately. UK Finance, trade body for lenders, said that a quarter point rise in the Bank Rate would trigger extra monthly costs of £15 for tracker rate customers and £ 9.60 for those on SVR deals (who typically have more equity in their properties).

The initial jump is small but it is just the beginning. And for homeowners trapped by the cladding crisis, the rises will be hitting those who are already grappling with extremely high unexpected costs.

The lending industry has a voluntary product switching agreement in place, whereby borrowers in flats affected by the cladding crisis can switch to a new, current mortgage product with their existing lender, provided they are not looking to borrow more money and are up-to- date with their repayments. But this system is not a mandate, and lenders can have different approaches. As in Ms Holland’s case, buy-to-let borrowers are often viewed differently.

GOVERNMENT OVERRULED ON CLADDING FIX The Government’s cladding policy has been ignored by the property industry after the Royal Institution of Chartered Surveyors, a professional body, defied guidance announced in July.

Ministers had said external wall system ( EWS1) forms should no longer be required for buildings less than 18m (59ft) high.

However, Rics has said they are still required, meaning those living in some 77,500 blocks between 11m ( 36ft) and 18m high will still need to pass an EWS1 to make their properties mortgageable. In some cases the cost of remedial works are £100,000 per leaseholder.

The Government’s July announcement was a U- turn from its previous position. In Jan 2019, it said the assessments were necessary for all flats.