Church’s ‘unaffordable’ home loans create housing crisis for retired clergy

HUNDREDS of vicars are caught in a retirement property crisis after taking on “unaffordable” Church of England home loans.

Many former clergymen, or their widows, are trapped after interest-only mortgage deals offered by the institution “backfired” – leaving them with rising interest payments and incapable of owning their home outright.

The fallout has led to the Church consulting on how it can better prepare priests for their retirement.

Many vicars did not buy property as they were moved from parish to parish and were provided with accommodation by the Church. To address the problem, a loan scheme with interest rates not available on the high street was introduced by the institution in 1983 .

Known as value-linked mortgages, they enabled clergymen to buy a share in properties for cash and pay only the interest, which was loaned to them by the Church, on the remainder. The idea was that when the homes were eventually sold, the Church would benefit from the house price growth.

But exponential house price inflation and rising interest rates have trapped some 400 vicars who are unable to remortgage with another lender and cannot afford to rent on the open market.

Mark Harris, of mortgage brokerage Howden Private Clients, said that it was “very surprising” the Church offered such products in the first instance, and that it should be sympathetic to those who feel they have been “mis-sold”. He added: “These shared appreciation mortgages offer low rates of interest to the borrower in return for the lender having a share in the upside of the value. If there is no upside, then of course there is no profit to share but house prices have soared and hence borrowers can find themselves in the unenviable position where they ‘owe’ the lender a significant proportion of the value of their home.”

The value-linked mortgage scheme that ran from 1983 to 2008, allowed borrowers to put down as little as a 5pc deposit on a house. Retired vicars who wanted to move out of their parishes were drawn to the product, because the interest rate was 3pc or 4pc – rather than the 16pc offered by other lenders at the time. But interest rates were allowed to rise annually in line with increases to clergy pensions, which are due to rise by 6.7pc next month, after rising by 10.1pc last year.

Average mortgage interest repayments for those affected are less than £400 a month, but vicars with 25 years of service receive a monthly pension about £650.

The Church of England’s Pensions Board is looking at improving housing options for future retired clergy. One option being considered is a new type of mortgage from a financial institution, for which the Church would help fund a deposit.