The mounting desperation sensed around Brick by Brick, the loss-making council-owned house-builder, could yet get even worse, after major mortgage lenders today announced that they would not be providing new loans for prospective house-buyers because of the economic uncertainty caused by the coronavirus pandemic.
Brick by Brick has borrowed at least £260million of public money from Labour-run Croydon Council, but last month Colm Lacey, the former council employee who now styles himself as chief executive of the struggling house-builder, revealed that the company had sold only five, or six, homes.
Yesterday, despite the government, health chiefs and the Mayor of London calling for a complete lockdown of non-essential work during the covid-19 emergency, Brick by Brick announced that it is pressing on with construction work on “a handful of sites” because “it would be at a significant business risk to close them”.
Now, even as Brick by Brick puts the public’s health at risk by rushing to finish its construction work, mortgage lenders have effectively put the handbrake on any further sales by announcing a halt on new lending.
Nationwide – one of the country’s biggest lenders – announced it would not be providing any new deals. Other building societies and banks are following suit, as the coronavirus lockdown has brought the economy to a virtual standstill.
Nationwide say they will only offer home loans to those with deposits of at least 25 per cent, which effectively rules out first-time buyers.
Santander and the Skipton Building Society have announced similar measures, while Barclays, Halifax, Virgin Money and The Family Building Society have gone further by reducing the LTV, or loan-to-value, ratio to 60 per cent – effectively requiring a 40 per cent deposit on any property purchase.
The Coventry Building Society has cut its loan-to-value ratio to 65 per cent.
Nationwide said the change will not impact existing applications, as they blamed “an extremely high number of enquiries about existing mortgages and ongoing applications”.
Brick by Brick last week closed its sales centre on George Street, and they have stopped all viewings of their new properties for prospective buyers.
With millions of people being laid off from their work, or placed on reduce pay during the virus lockdown, many existing home-owners are anxious about being able to meet their monthly mortgage payments, although the government has moved to enable most to take a three-month “mortgage holiday” during the covid-19 emergency.
“Lenders are having to work at a lower capacity because of staff being off and having to deal with thousands of calls for mortgage payment holidays,” Chris Sykes, from brokers Private Finance, told the BBC.
“So they don’t really have the capacity to do a lot of new mortgages right now. If they are going to do any, they want high-quality low-risk mortgages.”
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All it is going to take is a relatively small percentage reduction in sales prices due to market downturn and Brick by Brick and Croydon Council will no doubt be screwed financially as a result.
And imagine the financial peril of the council going into the hotel business, or running a retail and leisure park.
Local authorities have appallingly bad reputations when they venture out into the private sector. And it is always the Council Tax-payer who picks up the bill.
Brick by Brick was always going to be a disaster (using our money)