Minister contradicts PM by admitting EWS1 cladding forms can be used for low buildings
The admission comes after prime minister Boris Johnson attacked lenders during Prime Minister’s Questions last month for using the EWS1 forms on smaller buildings.
Lenders began using the forms for buildings less than 18m in height following a January update from the Ministry of Housing Communities and Local Government (MHCLG) which brought properties under 18m into scope.
Ministers have regularly protested this approach by lenders but now appear to accept that they are following necessary processes when doing so where cladding concerns arise.
Pincher’s statement came in response to a written question from Labour MP for Denton and Reddish Andrew Gwynne, who asked about lenders requesting EWS1 forms in blocks of three storeys or less.
In his answer, Pincher said: “The EWS1 process is not a government or regulatory requirement.”
He noted that whether an EWS1 is needed is determined by lenders and the professionals valuing a building.
“The department has come to an agreement with the Royal Institution of Chartered Surveyors (RICS) that flats in blocks without cladding do not need an EWS1 form,” he said.
“Buildings under 18m should not fall into the EWS1 process, unless in justifiable circumstances – usually relating to the proportion of cladding on the building.
“RICS is working with wider industry, including lenders, on new guidance for surveyors which will make clearer the circumstances when EWS1 valuation forms are, and are not, to be requested.”
In his outburst during Prime Minister’s Questions, Johnson said: “Mortgage companies should realise they [EWS1 forms] are not necessary for buildings under 18m and it’s absolutely vital they understand that while we get on with the work of removing cladding from all the buildings we can, and that’s what this government is continuing to do.”
Lenders responded with a statement on their own, saying: “In January, MHCLG’s advice note for owners of multi-storey, multi-occupied buildings was updated making it clear that all buildings should include an assessment of cladding as part of their Fire Risk Assessment.”
PM slams mortgage lenders for cladding response but leaves leaseholders with the bill
The subject of the government’s response to the Grenfell Tower disaster more than three years ago has attracted criticism for Johnson and his predecessor Theresa May and pressure is mounting for further action.
Johnson made the attack on mortgage lenders after being grilled by Labour MP for Ealing Central and Acton Rupa Huq at Prime Minister’s Questions.
“When 72 Londoners burned to death at Grenfell because of a cladding defect we all said never again, but for hundreds of thousands the living nightmare of waking watch* and the non-existent EWS1 form continues,” she said.
“So will the prime minister commit that no leaseholder anywhere should foot the bill for what’s no fault of their own?”
Johnson responded by pointing the figure at lenders, putting him at odds with the Ministry of Housing Communities and Local Government (MHCLG) which has just agreed that only those buildings without cladding do not need the EWS1 form.
“She’s right to call attention to the difficulties that many people are facing because of the EWS1 form and I sympathise very much with them,” he said.
“Mortgage companies should realise they [EWS1 forms] are not necessary for buildings under 18m and it’s absolutely vital they understand that while we get on with the work of removing cladding from all the buildings we can, and that’s what this government is continuing to do.”
Leaseholders to pay
Johnson also ignored the request to stop leaseholders being stuck with bills that could reach into tens of thousands of pounds.
This could put him into conflict with large numbers of Conservative backbenchers who are potentially prepared to rebel to support such a move, according to reports.
The government has so far pledged £1.6bn to rectify the aluminium composite material (ACM) and non-ACM cladding on buildings, however this will only cover a small percentage of work required.
Estimates expect the cost to complete work on all buildings could be up to ten times more.
At present the Building Safety Bill proposes a Building Safety Charge payable by leaseholders for cladding remedial works to cover this cost.
However, the House of Lords has already approved an amendment to the separate Fire Safety Bill opposed by the government which will prevent building owners passing on the cost of remedial work in that legislation to leaseholders and tenants.
This will be reviewed when the Bill returns to the House of Commons.
Note: *Big buildings have had to introduce guards offering surveillance throughout the night to protect against fires
Mortgage lenders have responded to the prime minister’s statement.
Green Homes Grant scheme extended by a year
The Green Homes Grant was announced in July as part of a £3bn investment package to support tens of thousands of green jobs as well as upgrade buildings and reduce emissions.
It allows homeowners in England, including landlords, to apply for up to £5,000 to make properties more energy efficient such as by installing insulation, glazing and new boilers.
Low income households can get 100% of the costs of work covered up to £10,000.
The scheme was due to end by 31 March 2021 and while nearly 21,000 applications had been made in the three weeks after launch, many people complained about being unable to find a registered trader or installer.
Many tradespeople reported the scheme was too difficult and time-consuming to sign-up for with limited scope for business. As such, homeowners were worried they would miss the deadline.
But today, Johnson confirmed the scheme would be extended by a year as part of his ten-point plan for a green industrial revolution to create and support 250,000 jobs.
Johnson said: “Although this year has taken a very different path to the one we expected, I haven’t lost sight of our ambitious plans to level up across the country. My ten point plan will create, support and protect hundreds of thousands of green jobs, while making strides towards net zero by 2050.
“Our green industrial revolution will be powered by the wind turbines of Scotland and the North East, propelled by the electric vehicles made in the Midlands and advanced by the latest technologies developed in Wales, so we can look ahead to a more prosperous, greener future.”
One of the green measures also includes bringing forward the ban on sales of new diesel and petrol cars to 2030.
PM must talk to industry to understand what first-time buyers need – Duncombe
We know they are the lifeblood of the sector, they help keep everyone else moving, so if they stop buying, then the rest of the market will stall too.
The government’s long-term mortgage announcement with its commitment to support this group of would-be purchasers was therefore encouraging.
It acknowledged the challenges they face and presented an ambition to level the playing field for homebuyers and it’s definitely got people talking.
But, with no detail of how the proposed scheme of providing 95 per cent mortgages would work and little engagement from government with the industry, it’s very difficult to comment on whether it’s what we need right now or if there is a more straightforward and quicker solution to the challenges first-time buyers currently face.
The biggest hurdle for those starting out is the lack of higher loan to value (LTV) lending products. This is a topic which has been discussed endlessly since March and while we’re starting to see some positive signs, with a few more lenders offering 90 per cent LTV for shorter stints (ourselves included), it’s far from ideal for brokers and their clients.
Buying a house has enough anxiety attached without not knowing if the deal you were considering last week is still available.
Sadly, with so few lenders prepared to venture into this space, capacity is a major concern.
With competition rules preventing lenders from sitting down and agreeing an approach to provide better outcomes for customers, these limited time pulses look set to continue.
Prices and affordability
Another barrier is house prices themselves. A survey carried out with prospective first-time buyers by Accord Mortgages and Yorkshire Building Society found a third of those expecting to buy within the next three years were worried about the cost of housing in their desired area.
It’s likely we’ll see movement in the market once the stamp duty holiday ends next year, but until then, pent-up demand and a change of living preferences is causing prices to rise.
Affordability is also a significant issue. And finally, changes to criteria as a result of the pandemic means for many first-time buyers, the goalposts are moving.
Many of the changes are to help improve capacity and will be temporary, but with so much uncertainty and employment so impacted by Covid-19, it’s likely the number of more complex cases will increase, which will undoubtedly deter many potential applicants.
Despite these challenges, there are opportunities. Advice has never been so vital, with 92 per cent of our survey respondents saying they would be looking for guidance when making a home purchase.
Brokers have the chance to secure new business which, if handled well, could be business for life, so there is a real incentive to reach out, offer the best support and ensure you have a robust client retention strategy in place.
And, if you have the benefit of a broker on your side, your chances of securing the best deal when it does become available is much greater.
Since March, our regular windows of higher LTV lending exclusively for those making that first purchase have resulted in more than 4,500 first-time buyers achieving their ambition to own their own home.
But of course there is more that can be done.
And if the prime minister wants to understand the market and the possibilities, then our industry is willing to join the conversation and work together to find innovative solutions.
Over the last few months, we’ve learnt that collaboration is critical to success and so I, as I know a number of my peers across the sector would join me in saying, would be happy to join that dialogue.
Let’s look at what we can do in partnership to help offer practical support for first-time buyers, increase capacity and ensure we have a housing market which is accessible, sustainable and robust enough to survive the next challenge, whatever that may be.
Self-employed grant boosted for second lockdown
Chancellor Rishi Sunak announce that the government will increase the Self Employed Income Support Scheme (SEISS) from 40 per cent of trading profits to 80 per cent for November.
The third SEISS grant covers November, December and January. Self-employed workers will be able to claim 80 per cent of their normal profits for November, then 40 per cent for both December and January.
This increases the total grant available from 40 per cent to 55 per cent of trading profits for November to January, with the maximum grant increasing to £5,160.
Initially the third SEISS grant was going to cover 20 per cent of profits for three months, up to a maximum of £1,875. But Sunak announced on 22 October that the grant would be increased to 40 per cent of profits, meaning a maximum grant of £3,750.
The latest announcement comes after prime minister Boris Johnson announced England would go back into lockdown on Thursday.
SEISS grants will also be paid faster than previously planned with the claims window opening at the end of November rather than the middle of December. The increase means £4.5bn of support for the self-employed between November and January.
Three million could miss out
However, only self-employed workers eligible for the previous SEISS grants will be able to make a claim – leaving an estimated three million self-employed worker with no financial support.
Rishi Sunak chancellor of the exchequer said: “So far we’ve provided £13.7bn of support to self-employed people through the crisis – and I’ve always said we will continue to do everything we can to support livelihoods across the UK.
“The rapidly changing health picture has meant we have had to act in order to protect people’s lives and I know this is incredibly worrying time for the self-employed.
“That is why we have increased the generosity of the third grant, ensuring those who cannot trade or are facing decreased demand are able to get through the months ahead.”
The government has also announced an extension to the Coronavirus Job Retention Scheme or furlough.
The scheme was scheduled to end on 31 October and be replaced by the Job Support Scheme on 1 November. The latter will now be postponed until the furlough scheme ends.
The furlough scheme will remain open until December, with employees on any type of contract receiving 80% of their current salary for hours not worked, up to a maximum of £2,500.
Spending Review to focus on Covid-19 support
Chancellor Rishi Sunak said the decision was taken to focus on supporting jobs, setting departmental resources and capital budgets for 2021-22, and the devolved administrations’ block grants for the same period.
The government statement said multi-year NHS and schools’ resource settlements will be fully funded, as will priority infrastructure projects.
The government previously stated that it would keep plans for the Spending Review under review given the uncertainty of Covid-19.
The Spending Review will focus on three areas:
- Providing departments with the certainty they need to tackle Covid-19 and deliver the government’s Plan for Jobs to support employment.
- Giving vital public services enhanced support to continue to fight against the virus.
- Investing in infrastructure.
Sunak said: “In the current environment it’s essential that we provide certainty. So we’ll be doing that for departments and all of the nations of the United Kingdom by setting budgets for next year, with a total focus on tackling Covid and delivering our Plan for Jobs.
“Long term investment in our country’s future is the right thing to do, especially in areas which are the cornerstone of our society like the NHS, schools and infrastructure.”
The date for the review will be confirmed shortly but it will be in the last weeks of November.
However, the Local Government Association (LGA) is not happy with the one-year Spending Review, or its timing.
LGA chairman James Jamieson said: “It is hugely disappointing that councils will only get a one-year funding settlement for the third year in a row.
“This makes it incredibly difficult for them to plan how to provide local services our communities rely on and which have proved so vital during the pandemic, including public health, adult social care, children’s services, homelessness support, and help for those in financial hardship.
“We urge the government to publish this Spending Review as soon as possible as the end of November is incredibly late for councils to find out how much money they will have to provide services next year.
“Councils will face a £4bn funding gap next year just to keep services running at today’s levels and need urgent certainty about how to set budgets and to plan any measures they may be forced to take to cut spending.
“Before the Spending Review is announced, the government must confirm that the resources councils have this year will not reduce and there will be no business rates reset next year,” he added.
Lenders not keen on a revamped mortgage guarantee scheme – Bamford
The prime minister focused heavily on supporting would-be first-time buyers who may currently be struggling to get on the housing ladder.
For those who may be longer in the tooth, there may also be a feeling of, ‘T’was ever thus’ but it’s obviously perceived as a good political way of reconnecting with so-called Generation Rent.
Undoubtedly this comes off the back of a significant drop in the number of 90 per cent-plus loan to value (LTV) products currently available, and a government concerned this will continue for some time and ultimately cause ongoing damage to the housing market.
There is also the small matter of the stamp duty holiday which I suspect the government believes is not going to be utilised in the same sort of numbers it would like, if first-timers and others are not going to be able to access higher LTV loans.
What is the solution?
Well, we clearly need more detail.
Just going on the speech and the media coverage it’s somewhat unclear how this will work, what the government support will actually be, what take-up there will be from lenders, and whether it can be as successful as the mortgage guarantee Help to Buy scheme for example?
Part of me wondered whether this forthcoming scheme would effectively be a replication of the Help to Buy mortgage guarantee which ended in 2016, but did a pretty good job of increasing high LTV product choice and creating greater competition overall in the sector.
But there are some caveats to that, with that scheme back being widely judged to be overly rigid and expensive.
It operated as a one-size fits all approach to offering a mortgage guarantee when, as we know only too well, lenders tend to want something individual and tailored to their own needs.
From what I gather, lenders are not too enamoured of a ‘Son of Help to Buy mortgage guarantee’ arrangement anyway.
This is perhaps why Johnson’s speech focused on the delivery of 30-year long-term fixed-rate mortgages as a potential solution, albeit one which the UK mortgage market has steadfastly refused to embrace over the past 50 years.
That said, the likelihood is that any scheme will at the very least be standing on the shoulders of the first Help to Buy.
That raises further questions, not least whether that is a good use of taxpayer’s money when the country’s finances are being stretched, when government borrowing is already at astronomical levels, and when there is a private alternative already in place?
Some lenders already use alternatives to support their high LTV propositions, and these ultimately cost the government a lot less than guaranteeing every single mortgage taken out under this scheme.
To secure widespread use of private mortgage insurance by lenders is going to need incentivising, and we will need HM Treasury and the Prudential Regulation Authority (PRA) to put their collective heads together to work out what the capital relief might be.
But by doing this they might find that such a scheme lands far better both politically and with those lenders who are going to be expected to enter into it.
These are still early days but these are certainly conversations which need to be had.
A scheme not backed by the taxpayer but by private arrangements can do everything the government wants it to and on that basis it should surely be an idea worth pursuing.
EWS1 cladding form guidance being reviewed by RICS
Prime minister Boris Johnson revealed the body had a “risk matrix” in the works to support the valuation of buildings under 18 metres during the Prime Minister’s Questions session on Wednesday.
This was in response to Matthew Offord, Conservative MP for Hendon, who said he found that advice issued by the Ministry of Housing, Communities and Local Government (MHCLG) regarding unsafe cladding had also been extended to properties under 18 metres.
Offord asked if this meant there would be any specific advice for shorter buildings.
Johnson said buildings over 18 metres were being prioritised but added: “I understand that the Royal Institution of Chartered Surveyors is producing a risk matrix to support mortgage valuation under 18 metres, and that, led by the National Fire Chiefs Council, a risk prioritisation tool for blocks of flats will be available shortly.”
A spokesperson for RICS said: “We are working on a review of EWS1 and guidance generally with a range of industry stakeholders.
“Any changes made as a result of that review will still have to follow the most up to date government advice.”
Building safety fund
Offord also asked if the building safety fund to pay for works to remove unsafe cladding from residential buildings would cover properties under 18 metres.
Johnson said he would “look at” the possibility of extending the fund to these properties.
The fund, which was increased to £1.6bn in May, is available to building owners in the private and social sector.
MHCLG fails to substantiate PM’s ‘two million more owner occupiers’ pledge
Johnson re-launched the policy, which was originally part of the Conservative manifesto at the 2019 general election, last week.
He initially trailed it in an interview with the Telegraph before talking further about it during his speech at the Conservative Party conference.
In his speech he said: “We need now to take forward one of the key proposals of our manifesto of 2019 – giving young first-time buyers the chance to take out a long-term fixed rate mortgage of up to 95 per cent of the value of the home, vastly reducing the size of the deposit, and giving the chance of home ownership – and all the joy and pride that goes with it – to millions that feel excluded.
“We believe that this policy could create two million more owner occupiers, the biggest expansion of home ownership since the 1980s.”
State of the market
However, questions have been raised about how realistic this target is and whether this number could be reached.
In 2018 and 2019 there were 1.19 million and 1.18 million total housing transactions respectively, with around 350,000 of these being first-time buyer completions, according to figures from UK Finance.
The trade body told Mortgage Solutions that each first-time buyer transaction in these years had an average of 1.5 borrowers, so the number of owner occupiers grew by around 525,000 per year.
Housing supply is one of the biggest limiting factors for first-time buyers and the government’s goal is to reach 300,000 new homes completed per year by 2025.
This is a significant increase from the 241,000 completed in 2019 and would be difficult under normal circumstances without builders working within coronavirus-related restrictions.
However, if the additional 59,000 properties were to be reached from the start of 2021 and all those were to go to first-time buyers with all of those using the new scheme to buy a property, that would result in 350,000 additional owner occupiers by the next election at the end of 2024.
Barely one sixth of the prime minister’s two million goal.
Stamp duty holiday
First-time buyers are being squeezed at the moment with lenders limiting LTVs, although those that are able to offer higher LTVs are typically prioritising first-time buyers.
Part of the reason for the limits is the scale of demand driven by several factors, including the current stamp duty holiday for all property purchases up to £500,000 introduced on 8 July and which is due to end on 31 March.
But first-time buyers were already exempt from stamp duty holiday on properties worth up to £300,000 with just five per cent paid on the value between £300,001 and £500,000.
A report by the Resolution Foundation noted that although the 8 July stamp duty cut appeared to remove a barrier to home ownership, as most first-time buyers were already exempt from the tax it has taken away their advantage and created more competition among other buyers such as landlords and second home owners.
Room to move
It is possible that once the extended stamp duty holiday ends there will be a significant drop off in the market, as seen following the introduction of the surcharge for buy-to-let properties in April 2016.
This could allow first-time buyers to take advantage, but any drop off in activity would likely mean a reduction in the number of sellers and could also hinder first-timers.
But even if the number of first-time buyers were to increase by half from April solely as a result of using the government’s new 95 per cent long term loan, that would be around 188,000 new owner occupiers per year.
And over four years that, combined with the 350,000 new owner occupiers from the potential increase in properties completed would total around 1.1 million – just over half the prime minister’s claim.
There are also questions about whether borrowers would wish to take out such a long-term fixed rate loan and whether the market could make it work.
Mortgage Solutions contacted the Ministry of Housing Communities and Local Government (MHCLG) to ask for an explanation of how the two million figure had been reached.
An MHCLG spokesman said: “The government will set out further details in due course.”
Landlords rebuke PM over rented housing claims
Johnson also spoke about his plan to offer 95 per cent loan to value (LTV) mortgages to help first-time buyers but revealed no new details about the policy, which has since received further criticism.
During his speech, Johnson said: “Millions of people are forced to pay through the nose to rent a home they cannot truly love or make their own, because they cannot add a knob or a knocker to the front door or in some cases even hang a picture – let alone pass it on to their children.”
‘Prime minister is wrong’
This was disputed by the National Residential Landlords Association (NRLA) which said a previous survey it conducted found 63 per cent of renters had redecorated their home and 52 per cent had made significant changes to their gardens with the permission of their landlord.
NRLA policy director Chris Norris said: “While we believe that those who want to should have the opportunity to buy a home of their own, the prime minister is wrong to imply that renters cannot turn the properties they live in into a home of their own.
“Indeed, landlords much prefer to have tenants settled long term in a home they feel comfortable in and want to look after.
“If the government really wants to support homeownership it should consider changes to the tax system to support and encourage landlords considering leaving the market to sell to first-time buyers.
“Reports that ministers are considering an increase in Capital Gains Tax would serve only to incentivise landlords to hold on to properties longer than they might otherwise have done,” he added.
Reintroduce guarantee scheme
Johnson continued his speech saying: “We need now to take forward one of the key proposals of our manifesto of 2019 – giving young first-time buyers the chance to take out a long-term fixed rate mortgage of up to 95 per cent of the value of the home, vastly reducing the size of the deposit, and giving the chance of home ownership – and all the joy and pride that goes with it – to millions that feel excluded.”
Yesterday Mortgage Solutions reported that brokers gave the policy a lukewarm reception.
And while other members of the mortgage industry appreciated the intention to enable more first-time buyers to purchase a property, they have suggested better options could be found.
Just Mortgages national operations manager John Phillips, argued that guaranteeing high LTV mortgages with taxpayer money was not right with the national debt growing rapidly.
Instead he suggested the reintroduction of a mortgage indemnity guarantee (MIG) scheme.
“These were widespread up until the year 2000. Paid by the borrower the MIG protected the lender against loss in the event of the borrower stopping paying their mortgage,” he said.
“While some considered it unfair that the borrower paid the insurance premium it did ultimately benefit the borrower as it ensured a large number of high LTV mortgages.
“If the government really does want to bring back high LTV mortgages this has to be the way forwards as mortgages guaranteed by the taxpayer are clearly not sustainable at a time when government borrowing has now exceeded our annual GDP.”
Reallymoving CEO Rob Houghton echoed the concerns and risks of high LTV lending.
“The Mortgage Market Review, which came into force after the credit crunch, remains in place to protect buyers from the kind of irresponsible lending practices we’ve seen in the past,” he added.
Tackle long-term failures
Audley Group CEO Nick Sanderson argued that government should be tackling the long-term failures in the country’s housing provision and where there is a severe under-supply.
“Renewing the focus on building more homes and turning generation rent into generation buy is wrong,” he said.
“It was wrong before, and is wrong again now. We have enough houses, but they are under-occupied: a report from City Business School found that we will have 20 million surplus bedrooms in this country by 2040, many in houses owned by people who would like to downsize.”
However, NAEA Propertymark chief executive Mark Hayward supported the proposals.
“We welcome the prime minister’s comments today which shows a positive change in tone by promoting a generation of renters to become a generation of buyers,” he said.
“We encourage lenders to come on board and support this initiative to enable first time buyers to enter the property market by future proofing the financial burden many face.”