EXCLUSIVE: Up to 750,000 landlords are caught up in cladding scandal, new data shows

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Up to 750,000 landlords could be affected by the cladding scandal, a much larger figure than previously claimed, according to new research.

About 1.5 million flats are thought to have flammable building cladding or other fire safety-related issues and face huge repair bills or difficulties moving their mortgage to a different lender.

Credit ratings firm DBRS Morningstar’s study of 64 UK mortgage portfolios found that of 670,000 mortgages, 106,000 loans were on flats, with 49,000 of these on BTL properties.

Extrapolating these figures points to half of the cladding affected flats being owned by landlords.

DBRS found that due to the reduced resale value or the increased burden of funding fire safety repairs, borrowers potentially face higher monthly mortgage payments when re-mortgaging.

£140 a month

The increase in most cases ranges from £15 to £140 per month but could be much higher, for example if owners have to pay the lender’s standard variable rate.

However, it says fire safety repair bills are unlikely to vary as much as property values.

It reckons borrowers in North England with lower value properties could face large bills relative to their property’s value; a £35,000 repair bill works out to about 36% of the average property value for a flat in Newcastle but would be only 7% of the average West London apartment value.

If property values were reduced by £35,000 due to fire safety defects, only 0.3% of West London flat mortgages would be in negative equity compared with 56% of flat mortgages in Newcastle.

Last month, leaseholders in buildings under 18 metres were told they would have to stump up the full remediation cost to fix the cladding crisis. Government grants only cover buildings over 18 metres – a move the Leasehold Knowledge Partnership has labelled shameful.

Read more about fire safety changes.

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SHOCK REPORT: Eviction ban’s 21,000 ‘in-limbo’ Section 21 notice landlords

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Ministry of Justice data shows that there are approximately 21,000 landlords who have permission from the courts to evict tenants after serving Section 21 ‘no fault’ notices, but who are now stuck in limbo due to Covid.

These landlords, who have been ‘forgotten’ during the multiple extensions to the eviction ban over the past year since the pandemic started, are unable to sell properties, move back onto them or evict extreme rental arrears tenants until bailiff evictions are given the green light again.

The earliest that is likely to happen will the 31st May when the current ban ends, meaning many landlords will have been waiting 14 months or more since serving Section 21 notices either before the first evictions ban in March last year.

But while attention has been focussed on rent arrears and the financial problems it is causing for both tenants and their landlords, these 20,000 or so landlords are stuck.

Tim Frome of Landlord Action estimates that 25% of his firm’s current claims were initiated through Section 21 notices.

The problem with the government’s evictions ban is that it ‘blanket’ ban on all Section 21 evictions, even when a landlord may have a pressing financial need to repossess a property, and the tenant is not in financial distress.

30-month wait

We talked to one landlord, who wishes to remain anonymous after threats from the tenant involved, who served a Section 21 notice after he stopped paying rent in October 2018 and is still waiting for him to leave nearly 30 months later.

After it became clear that the tenant was intent on using every legal trick in the book to evade paying rent including refusing property inspections or maintenance requests, she issued a Section 21 ‘no fault’ notice and was granted a possession order in November 2019, with a bailiff date set for mid-April 2020.

Just before that date the government introduced its evictions ban, which has been in place ever since and is now set to finish at the end of May. This leaves the landlord’s case in limbo and the tenancy £30,000 in rent arrears plus costs and counting.

“The irony is that he’s not even living there and is illegally sub-letting the property so it’s not like we’re making him homeless,” she says.

“We’re not greedy landlords – we’re reasonable about tenants who are in financial distress and who we are happy to help out, but at the moment the law protects tenants intent on ripping us off too as well as the vulnerable.”

Read more about Section 21 notice evictions.

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MINISTER: Landlords can reject pets if ‘demonstrably poorly behaved’

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The government has hardened its position on the hurdles that tenants will have to clear before a landlord needs to allow pets into their property.

Answering a written question from MP Rachael Maskell (pictured) about what constitutes a good reason for landlords to decline a pet ownership request from a tenant, Housing Minister Christopher Pincher (pictured training a police dog, main pic) provided a more detailed explanation using the revised Model Tenancy Agreement, that should give landlords a little more leeway.

He replied: “A good reason for a landlord to decline a pet ownership request would be where a pet is demonstrably poorly behaved or unsuited for the premises in question, for example, a large dog in a small flat, or where other tenants have allergies to animals.”

The minister has gone further than the agreement, which instead notes that, ‘The landlord should accept such a request where they are satisfied the tenant is a responsible pet owner and the pet is of a kind that is suitable in relation to the nature of the premises at which it will be kept.’

Revised agreement

Pincher added: “The revised agreement provides that a private landlord who chooses to use the agreement should accept a request from a tenant to keep pets where they are satisfied the tenant is a responsible pet owner and the pet is of a kind that is suitable in relation to the nature of the premises at which it will be kept.

“It aims to remove restrictions on responsible tenants with pets, encouraging landlords who use the agreement to offer greater flexibility in their approach to pet ownership.”

Many landlords are concerned that the new guidelines force them to accept pets, however, the new terms and conditions are voluntary.

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LATEST: Speculation rises over how taxing CGT changes will be for landlords next week

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Speculation is rife that the Chancellor is set to announce a long-term tax-raising plan that would include a Capital Gains Tax (CGT) rise next year.

Rishi Sunak didn’t change the rates in his recent budget as many had feared – instead he promised to maintain the current level until April 2026; 18% for basic rate taxpayers and 28% for those in the higher rate threshold, with tax exempt on the initial £12,300.

But before the budget, Sunak’s office released a statement explaining how more details of a planned tax regime would follow on 23^rd March.

Although it promised the announcement wouldn’t affect government finances this year, it leaves the door open to tax rises in 2022.

The Office of Tax Simplification has previously called for CGT to increase in line with income tax rates of 20% at the basic rate and 40% at the higher rate, while also lowering the initial amount exempt to just £2,000.

If these changes are adopted by the government, research by lettings and estate agent, Benham and Reeves based on the average capital gain of a buy-to-let investment of £82,798, shows how it would hit landlords hard.

Higher CGT?

Selling in the current market would see a lower rate taxpayer pay £12,690 in CGT, while a higher rate taxpayer would pay £19,739.

But if these changes take effect, the tax owed would climb to £14,100 for a basic tax rate payer, while those in the higher threshold would see it increase to £28,199, a jump of £8,460.

Beham and Reeves director Marc von Grundherr (pictured) believes the proposed changes would be another nail in the coffin of the buy-to-let sector.

He says: “A further increase in capital gains rates is nothing more than a blatant attack on landlords. The government seems intent on targeting landlords and second homeowners as the cause of the current housing crisis. The reality is, their failure to build enough homes is the driving cause.”

Read more about the proposed CGT ‘tax raid’.

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