Mortgage Trap for Cladding Crisis Landlords
Thousands of landlords renting out buy-to-let apartments face huge bills to pay for the stripping of unsafe cladding from blocks of flats.
Experts fear landlords may become rent and mortgage prisoners due to cladding and other fire safety issues blighting the homes.
Landlords owning two or more buy-to-let apartments face bills of tens of thousands of pounds because they are forgotten in a £4 billion relief deal announced by Gove.
Instead, they face average costs of £40,000 for each apartment they own, while some bills are as high as £100,000 in London.
Risks faced by landlords
Property experts have railed against the scheme, claiming Gove has made the homes almost impossible to rent or sell until cladding defects are rectified.
Gordon Kerr and Ketan Thaker of investment firm Morningstar|DBRS have listed several reasons why landlords are likely to suffer from the decision:
- Remortgaging to a lower rate is impossible as most lenders refuse to take on the loan.
- Apartments may drop in value, increasing the loan-to-value making mortgages more expensive as payments increase by £15 to £140 a month in many cases.
- Landlords may seek to borrow more to cover the cost of remedial works
- Renters may be unwilling to move into blocks with fire safety issues, which will lead to lower rents for landlords
- Fire safety defects put off buyers, pushing down property values
- Freeholders could put up ground rents to try to claw back their safety work costs
Buy to let mortgages and cladding checks.
Lenders will ask valuers to fill in a form EWS1 on every building that is four floors, 11 metres high or taller. The form asks the valuer to confirm: For buildings where the external walls are a fire risk:
- A1 - No significant combustible material present
- A2 - No remedial work is required
- A3 - Remedial work needed
For buildings that are a fire risk:
- B1 - The fire risk is low, and no remedial work is needed
- B2 - Fire risk is high, and interim safety measures are called for
Many lenders accept scores of A1, A2 or B1. Flats in buildings rated A3 or B2 are valued at zero for mortgage purposes, and lenders will not offer loans until safety work ends.
Can landlords sell buy-to-let flats?
Landlords can still sell their apartments - if they can find a buyer - although anyone with property in a block over 18 metres high must wait until repairs are finished. Any restriction on selling flats in mid-rise blocks (Between 11 and 18 metres tall) is lifted.
What is the Gove cladding deal?
The cladding policy is part of the Building Safety Bill currently passing through Parliament. The bill was introduced after the tragic fire at Grenfell Tower, a 24-storey block of flats in West London.
The blaze killed 72 people, and the cause was identified as defective cladding wrapping the block. Investigations revealed that thousands of other blocks of flats had the same external cladding.
Gove has decreed who should pay to strip the faulty cladding for replacement with safer materials. The housing secretary was keen not to burden homeowners or accidental landlords with extra bills.
He pledged that no one with a flat in a block over 18 metres tall would pay towards remedial works to the block. However, portfolio landlords in mid-rise blocks (11 - 18 metres high) must contribute - with their payments capped at £10,000 outside the capital and £15,000 in London.
Mr Gove said: “It is time to bring this scandal to an end, protect leaseholders and see the industry work together to deliver a solution. These measures will stop building owners passing all costs on to leaseholders and make sure any repairs are proportionate and necessary for their safety."
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Landlords’ Responsibilities for Repair and Maintenance
In addition to any repair responsibilities explicitly set out in the tenancy agreement, common law and statute will imply terms to the agreement between landlord and tenant.