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Coordinated effort needed on cladding as borrowers face years in limbo – Ganatra

by: Hiten Ganatra, managing director of Visionary Finance
  • 12/10/2020
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Coordinated effort needed on cladding as borrowers face years in limbo – Ganatra
Homeowners living in flats are finding it near impossible to remortgage where they cannot provide evidence of an external wall survey which confirms the building is free of combustible materials.


In the wake of the Grenfell disaster, surveyors acting for mortgage lenders are making extra checks to ensure a building’s construction is safe.

Many are asking for evidence of an external wall survey, which comes in the form of an EWS1 certificate.

It was first designed for flats in high-rise blocks, typically at least six storeys, but in January, ministers said fire safety should be considered on all blocks, irrespective of height.

And borrowers are increasingly finding that their building does not have one.

The situation has created a new wave of mortgage prisoners for people who are living in flats who are stuck with their existing lender.

If they do not agree a new mortgage deal with their existing lender, they will revert onto the standard variable rate (SVR) which will see their monthly repayments rocket to potentially unaffordable levels.


Stuck on the SVR

The average standard variable rate is around 4.7 per cent – far greater than the best deals available today at less than two per cent for a two-year fix.

To give context to the problem, we have been trying to assist a client whose Sainsbury’s Bank fixed rate mortgage product was coming to an end on 30 September.

She approached us in good time to start the process of exploring remortgage options and to compare what she has been offered by her current lender against what is available in the market.

Having gone through the initial know your customer requirements we chose to place her mortgage with Coventry Building Society, whose offering was more competitive.

However, upon submission of the application we received notification to say that that an EWS1 on the building would be required in order for the case to progress forward.

Our client approached the management company to request this and despite the investigatory work being started on the building which confirmed there was no aluminium composite material (ACM) or high-pressure laminate (HPL) cladding the management company was unable to provide timescales on when the report will be issued.

Our client now sits on the SVR and is at the mercy of others despite her building not being over 18m tall.


Wait for work could be years

There are likely to many borrowers who are in the same position as some of our clients that are unable to take advantage of competitive mortgage rates offered by rival lenders because of the prerequisite need to have an EWS1.

The problems, however, go beyond those homeowners who cannot get access to the correct paperwork.

There have been instances where even though the mortgage client has received their EWS1 certificate, it came with remedial work being required and so lenders are not willing to lend – or remortgage – until that work has been completed.

The wait for the work to be done could be years depending on the size of the building.


Coordinated effort needed

In my view UK Finance must apply pressure on banks to ensure they allow a degree of flexibility when it comes to assessing applications which require the EWS1 forms.

The situation hasn’t been helped by the facts that due to lockdown and huge backlogs with the fire risk assessors obtaining these reports isn’t a quick process.

RICS also has a crucial role to play by giving guidance allowing mortgage valuers to be able to provide a broad opinion to the lender on their suitability.

The valuers are concerned about protecting themselves from being held accountable in the event they sign off lending then the building goes into flames.

The government needs to look at giving a moratorium period otherwise mortgagees stand to be the ones bearing the brunt.

While homeowners are having to pay over the odds for their mortgage, the problem also means they are unable to sell their home, because any new owner would not be able to secure a mortgage. The impact is significant for the wider housing market as those unable to sell their flats are blocking what needs to be a fluid market.


How widespread is the problem?

Some 457 high-rise buildings over 18m have been identified in England as having ACM, which is the same type of cladding that was mounted onto Grenfell Tower.

Official figures from the Ministry of Housing published in June state that 300 of those buildings are still waiting to be made safe.

Some £1.6bn has been pledged by the Ministry of Housing, Communities and Local Government to speed up the replacement of the unsafe cladding.

However, the funds only cover buildings more than 18m tall.

Yet many other blocks are still covered in potentially unsafe materials – many with no sign of important remedial works taking place.


Borrowers bearing the cost

The Housing, Communities and Local Government Committee, an influential group of MPs, has called on the government to intervene, but warned that repairing the 2,000 properties that have combustible cladding could cost £15bn.

Regardless of height, safety tests must be carried out by a qualified engineer who assesses the walls and then declares the building safe – or otherwise.

There have been concerns that part of the delay in getting the paperwork is due to a shortage of engineers.

According to the Institution of Fire Engineers there are only around 290 qualified experts able to carry out investigations of external wall systems (including cladding, insulation and fire-stopping).

This could lead to waiting times of months and even years for some.

While the wrangling continues mortgagees are bearing the cost.


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