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Mortgage industry cladding form branded ‘slow and expensive’ as MPs call for overhaul

  • 12/06/2020
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Mortgage industry cladding form branded ‘slow and expensive’ as MPs call for overhaul
MPs have criticised the External Wall Fire Review (EWS1) process, designed to help banks make lending decisions on high rise properties with a potential fire risk, for being “slow and expensive” and have asked for the government to step in.


In a report by the Housing, Communities and Local Government Committee, the group of MPs said the EWS1 process was not working and called on the government to take control by putting in place a “faster and fairer” system.

In its report, the committee said: “The industry-designed EWS1 process was put in place to allow mortgage providers to make informed lending decisions on high-rise residential properties potentially at risk of serious fire safety defects.

“However, it is a slow and expensive process and we are concerned that it is being applied to an unnecessarily wide range of buildings.”


Stop moving onto SVR

Ministers, said the MPs, should have issued clearer guidance to mortgage lenders before issuing new advice on how to treat buildings that could pose a fire risk.

In its recommendations the committee said: “Government must urgently work with mortgage providers to give residents the right to remain on their existing mortgage deals and not be forced to move onto expensive standard variable rate (SVR) mortgages.

“Where residents have already been forced to move onto standard variable rate mortgages, lenders should immediately offer them the right to move to one of their cheaper products.”


Landlord failings

The committee’s comments were included in a wider report on the failings of landlords to make high rise and apartment block buildings with combustible materials or fire risks safe fore residents. Some 2,000 buildings remained unsafe, three years after the Grenfell Tower tragedy.

The EWS1 form, introduced in December 2019, was the result of a collaboration between mortgage and housing market trade bodies and industry experts including UK Finance, the Building Societies Association and the Royal Institution of Chartered Surveyors (RICS).

The idea was to create a standardised process that would make it easier for brokers and homeowners to find suitable mortgages.

A valuer could request the one-page-form from a building owner or representative. It would require a professional with building expertise to confirm that the actual material on the walls posed a limited risk or was non-combustible.

If it did contain materials that posed a significant fire risk, a detailed description of what was needed to fix it had to be issued.


Delayed surveys blocking borrowers

But less than a month after the form had been in use, brokers had begun reporting that lenders were rejecting mortgage applications due to outstanding cladding inspections trapping borrowers with their current providers.

Mortgage applications were being cancelled because inspection requests made to the management and maintenance companies of the high rise properties were delayed.

Speaking at the time, a spokesperson for Barclays said the matter related to “those qualified to issue the EWS1 certificate, the number of buildings that need to be inspected and the time needed to complete this review”.

The committee reported there was a lack of qualified, insured Chartered Fire Engineers to undertake the required surveys, which meant a large number of buildings would not be inspected for many years.

EWS1 surveys were expensive, with costs typically passed to residents through their service charges even where no fire safety defects were found.


Further reforms

Fire safety advice from the Ministry of Housing, Communities and Local Government (MHCLG) had led to a much larger number of buildings falling into the scope of the EWS1 process than had been envisaged.

“It is clear that the process has lacked sufficient input from leaseholder representatives, but also other important stakeholders, including the insurance industry,” the committee reported.

“Reforms could include a relaxation of the rules on who is able to undertake these surveys, clarification of which buildings should fall within scope and more guidance to ensure the correct prioritisation of buildings.

“The government should provide necessary funding to ensure that all affected buildings are surveyed within the next 12 months, so residents are not forced to wait years before they are able to sell their properties or obtain new mortgages.”


‘Government must take ownership’

In response to the report, RICS said it agreed with some of the issues the MPs raised and urged the government to take greater ownership of the situation.

The body also noted that at least 860 EWS forms have already been completed, meaning homeowners in at least 800 blocks have been able to buy, sell and remortgage or plan remediation works.

“RICS has always called for a properly funded, centrally managed approach to the resolution of the issues which have come to light since the tragedy of Grenfell,” it said.

“EWS1 was created to find a solution to the problems caused in 18m+ tower blocks by MHCLG advice, which the report acknowledges. EWS has allowed homeowners to know whether safety critical works are needed and also obtain finance to buy, sell and remortgage.

“Its development was cross industry which included lenders, valuers, insurance, legal representation, developers and a number of other interested parties and trade bodies.”


MHCLG caused confusion

However, RICS acknowledged that since its launch, a lack of fire experts with the knowledge and skills to assess wall systems had caused problems as had the lack of professional indemnity (PI) support from the insurance industry.

And it laid some of the blame with the government.

“The MHCLG consolidated Advice Note issued January 2020 caused further significant confusion when it brought all buildings regardless of height into scope and added to the already known capacity issues with fire experts,” RICS said.

“RICS continues to call on government to take ownership and properly fund remediation works to all affected buildings. Only with a well thought out, government funded strategy, will leaseholders be able to live in safe buildings.”

RICS said industry and government collaboration was important and had been on going, but there was need for further government funding for buildings of all heights.

It added: “RICS will continue to work on the EWS process, to ensure it is the best it can be, until such time as government creates an alternative way of assessing and remediating buildings with flammable cladding.”


Considering improvements

A UK Finance spokesperson said: “As the select committee’s report acknowledges, the External Wall Fire Review process was designed to enable informed lending decisions on high-rise residential properties potentially at risk of serious fire safety defects.

“It has enabled lending on numerous flats but we will be considering the committee’s suggestions about how the mortgage process can be improved for residents.”


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