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Finance industry could see widespread mortgage defaults

Could cladding scandal trigger new bank crisis? Finance industry could see widespread mortgage defaults if leaseholders are forced to pay for safety repairs, MPs are warned

  • Widespread mortgage defaults could spark a economic meltdown, expert warns
  • It is due to cladding on buildings which could cost thousands to homeowners
  • Expert says unaffordable bills would cause borrowers to default on mortgages 

The building safety scandal could lead to the next banking crisis if leaseholders are forced to pay for repairs, MPs were warned yesterday.

Former Bank of England economist Dean Buckner said widespread mortgage defaults could spark a Northern Rock-style run on the banks.

His dire warning came after campaigners told the Commons Housing Select Committee that ministers needed to ask them for a spreadsheet of building safety data because they ‘had no handle’ on the scandal themselves.

A general view down the Thames path towards the Royal Artillery Quays which has the same  flammable cladding that caused the Grenfell disaster 

Dr Will Martin, co-founder of the End Our Cladding Scandal campaign, had earlier told MPs that the Government had no idea how widespread the problem was

It piles further pressure on Housing Secretary Robert Jenrick, whose plans to end the crisis were blasted as a ‘betrayal’ of leaseholders by Tory MPs.

Mr Jenrick has set aside £5billion to replace unsafe cladding on buildings above 18 metres (60ft) in height. 

But hundreds of thousands of families living in smaller blocks face bills of up to £600 a year.

Meanwhile, all affected leaseholders still face average costs of £25,600 each to fix non-cladding related defects. The Mail is campaigning to end the scandal.

Mr Buckner, who is now advising charity Leasehold Knowledge Partnership, told the select committee that unaffordable bills would cause borrowers to default on their mortgages.

He said this would erode capital lenders have set aside to ‘absorb losses’, adding: ‘If banks become clearly in trouble, that then affects all of us, because we all have money with banks.’

Mr Buckner later told the Mail that mortgage defaults could prompt banks to restrict lending to all borrowers, while some could even collapse as they did during the 2007-08 financial crisis. 

He said: ‘If the market gets even a sense that this is happening, then you could get runs on the banks, such as we saw with Northern Rock and HBOS.

‘That is absolutely not out of the question.’ Mr Buckner said the Bank of England was ‘probably doing something about this already’.

Dr Will Martin, co-founder of the End Our Cladding Scandal campaign, had earlier told MPs that the Government had no idea how widespread the problem was. 

He said ministers asked campaigners at a meeting in 2019: ‘Can we have your Excel spreadsheet with all of your building data on?’

Dr Martin, 32, who lives in a building in Sheffield with fire safety defects, added: ‘They have no handle on the scale of this problem – and they have no handle on the scale of all the other problems that are plaguing these buildings.’ 

The Government has identified 419 high-rise buildings with the same cladding as Grenfell Tower. It says 216 have been fixed. 

But it still has not given a firm estimate of how many buildings have other forms of dangerous cladding.

A Government spokesman said they ‘didn’t recognise’ Dr Martin’s account, but added: ‘The Government listens to and takes evidence from stakeholders as part of the policy development process – that’s what people expect us to do.’

The Bank of England declined to comment.

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