Only half of high-rise tower blocks have had dangerous ACM cladding fixed
The data shows that at the end of March only 247 or 53 per cent of the 469 high-rise residential and publicly-owned buildings in England had fully completed remediation.
ACM cladding is the type which was responsible for the Grenfell Tower disaster in June 2017 and progress on remedying the situation has been slow.
At January 2018 three of the 318 buildings then-identified had been fully remediated and since then it has taken more than three years to complete another 244, with 31 coming since the end of December 2020.
Encouragingly a further 111 buildings no longer have ACM cladding systems in place, meaning 76 per cent of all identified buildings have now had their ACM cladding removed, with some remedial work remaining.
And the Ministry of Housing, Communities and Local Government (MHCLG) data shows that by the end of March 93 per cent of all identified buildings had at least started remediation work to remove and replace the unsafe ACM cladding.
By the end of 2021, MHCLG estimates that 85 per cent of identified buildings will have completed remediation.
Of the 71 buildings not forecast to have completed by the end of the year, 31 are forecast to have removed their ACM cladding systems by the end of 2021 and a further seven are vacant.
However, there are still thousands of blocks which have dangerous non-ACM cladding.
According the latest MHCLG figures, 2,820 of these had applied for funding through the government’s £1bn Building Safety Fund for support to remove their non-ACM cladding.
MPs reject amendment to remove cladding costs from leaseholders
It was returned to Parliament for consideration after the House of Lords refused to pass the bill without the amendments.
The motion, which was tabled by Lord Bishop of St Albans Alan Smith, included a clause that said leaseholders should not pay for cladding remediation unless they were also the owner or part owner of a high-rise building.
This was in response to the government announcing that a £3.5bn fund would be provided to correct cladding on buildings taller than 18 metres, while leaseholders of shorter buildings would pay with a government-backed loan capped at £50 a month.
During the debate Stephen McPartland, Conservative MP for Stevenage, said it was “morally unacceptable” to push the costs onto leaseholders.
He said: “Leaseholders do not want taxpayers to pay and members across the House do not want taxpayers to pay; we want those who are responsible to pay — the developers, the insurance companies and the building regulators who said that these properties were safe over the past 20 to 30 years, when many of the leaseholders who will be forced to pay these bills were in primary school or not even born.
“It is not acceptable, it is not fair and it is not right.”
Costs protecting leaseholders
In conclusion, Christopher Pincher (pictured), minister of state for housing, communities and local government, said the amendment was “unworkable and impractical”.
He added: “The amendment does not take into account remedial works that arise outside of the fire risk assessment process — for example, costs identified as a result of a safety incident or building works taking place.
“In such cases, this will not prevent costs being passed on, so it does not deliver what members want it to do.”
Pincher said if the amendment was added to the Bill and became law without a redrafting of legislation, the taxpayer would be liable for drawn out court proceedings. He said building owners could use litigation to claim for costs which could delay construction works.
Pincher said the changes would also require parliamentary counsel to avoid legal challenges, something which would not be resolved during the debate.
He added: “Furthermore, the amendments do not reflect the complexity involved in apportioning liability for remedial defects. The government [has] announced how they will distribute costs, including from developers and industry, through our upcoming levy and tax.
“A decision through this amendment to pass all these costs to the building owner would be overly simplistic and it could be counter-productive. It would be self-defeating if landlords, faced with remediation costs, simply walked away. Many could do that. They could activate an insolvency procedure and just walk away.”
He said it was not about protecting freeholders, but about protecting leaseholders from being left with costs if building owners refused to cover the payments.
“There is a real risk that this amendment could make the problem worse for leaseholders. We would be left in a situation where there would be delays to the commencement of the Fire Safety Bill, delays to our wider building safety programme, greater uncertainty for leaseholders and, quite possibly, unintended and deleterious consequences for them.
“We would not be any further forward in resolving the issue,” Pincher added.
Developer cladding tax consultation due ‘in coming months’
This was confirmed by the Treasury today as part of 30 tax updates, consultations and documents.
The tax will be introduced next year.
It follows an announcement made by housing secretary Robert Jenrick last month, where he said £2bn needed to be raised over a 10-year period.
At the time, Jenrick said: “The government has always expected the industry to contribute towards these costs and some have already done so.
“The tax will ensure the largest property developers make a fair contribution to the remediation programme in relation to the money they make from residential property, reflecting the benefit that they will derive from restoring confidence to the UK housing market.”
A levy is also expected to be applied when developers apply to build the largest buildings.
The government has been widely criticised for its handling of the cladding scandal, including by brokers and lenders.
However, it is maintaining that leaseholders in buildings under 18 metres high will have to cover the costs of repairs and replacements despite bearing no fault for the situation.
Scottish government to offer homeowners with cladding free safety assessments
The decision follows a recommendation published today by the Ministerial Working Group on Mortgage Lending and Cladding.
The Scottish government said it accepted all suggestions, including making information on residential buildings with cladding public. The government will also be investing the £97.1m funding received by the UK government to address cladding problems.
All buildings within the scope of the Royal Institution of Chartered Surveyors (RICS) updated guidance will be eligible for a free inspection through the soon to be launched Single Building Assessment programme.
The assessment will be undertaken on the whole building and will determine how much funding will be needed to correct the property if unsafe materials are found.
Assessments are expected to begin in June with remediation funding confirmed in August.
Scottish housing minister Kevin Stewart said: “This is an important milestone for people who are living in buildings with cladding. I have heard personally from homeowners who have had to change their life plans or are living with real concern about safety – no one wants that uncertainty and anxiety to continue.
“By funding the Single Building Assessments we will have a clear picture of the scale of the issue. This will enable us to provide support for the remediation work required – I do not want people left facing unfair remediation costs. This approach will also save homeowners hundreds of pounds that they may otherwise have faced through paying for an EWS1.
He added: “We cannot guarantee that there will be enough public funds to support all the work that is needed, and other parties such as developers must continue to play their part where construction is not as it should have been.
“We have not yet been given clarity about how much or when we will receive the further funding promised from the UK government and we continue to urgently press for this. When we do receive this, we will commit to ensuring it goes towards this major programme of work.”
Paul Broadhead, head of mortgage and housing policy at the Building Society Association, said: “The action announced by the Scottish government is to be welcomed as a positive step forward. This announcement should give flat owners and occupants in Scotland hope that the sales market can be restored.
“We are committed to working with the Scottish government to support the implementation of the recommendations to restore confidence to all flat owners in Scotland.”
Lords vote blocks government from ‘penalising’ leaseholders with cladding costs
Some 326 members voted in favour of the motion to add changes to the bill which block building owners from passing on removal costs of remediating cladding to tenants in high rise buildings.
The motion, tabled by Lord Bishop of St Albans Alan Smith, includes a clause which says a leaseholder must not pay for works unless they are also the owner or part owner of the freehold.
Last month housing secretary Robert Jenrick said leaseholders in buildings shorter than 18 metres would have to pay towards remediation for unsafe cladding through a government-backed loan while the government paid for taller properties with a £3.5bn fund.
The government-backed loan will not cover any costs to fix non-cladding fire related refurbishments to make a property safer, opening up the risk of building owners imposing additional bills on leaseholders.
The decision was criticised by the property industry and Tory MPs, despite Jenrick assuring payments would not exceed £50 a month. In February, 30 Tory ministers voted against the decision to remove previous amendments made by MPs Stephen McPartland and Royston Smith to stop leaseholders being laden with fees.
The Intermediary Mortgage Lenders Association said it was “completely unacceptable” for leaseholders to cover the costs while brokers said they should not have to put any money towards construction.
Meanwhile, the Leasehold Knowledge Partnership charity said a fifth of leaseholders were planning to declare bankruptcy to avoid paying.
Government not meeting promises
Speaking at the debate in the House of Lords yesterday, Lord Bishop Smith said leaseholders were victims who had done nothing wrong and “deserved to be treated much better” by the government.
He added: “They have done everything right. They have bought their properties and are paying their mortgages. Now they are being penalised for the failure of others. Surely that cannot be right.
“The fact that their buildings have been covered in dangerous cladding has made their flats worthless. They cannot sell their properties, but they are still expected to pay their mortgages and other charges.
“They cannot get work done; they may be paying for a waking watch and in some cases the properties will have guarantees on them which need to be drawn down. There will be warranties for work done which need to be used. They have been paid for, otherwise they are literally not worth the paper they are written on.
He continued by strongly criticising ministers for not living up to their promises.
“The government are failing leaseholders and tenants. Their actions are just not good enough and fall far short of what they promised.
“For the individual builder, contractor, company, warranty provider or insurance company, it cannot be right for people to wriggle out of their responsibilities. The government needs to take firm action.”
Top ten most read mortgage broker stories this week – 12/03/2021
Concerns that restrictive loan to income (LTI) policies could freeze first-time buyers out of the market, drove an analysis of the impact of LTIs on first-time buyers to the top of the most read stories this week.
Elsewhere, innovation from Habito in the form of a 40-year mortgage and Metro’s foray into near prime lending grabbed attention.
Updates to the cladding guidelines and an extension to the eviction ban made for a busy week in the mortgage and housing markets.
Loan to income changes could shut first-time buyers out of 95 per cent market – analysis
Mortgage commitments soar as high-LTV lending plummets and rates rise – FCA
Metro Bank launches near prime mortgage range
TSB reduces high LTV rates and Accord amends affordability calculations
Tightening mortgage affordability will limit house price rises – OBR
RICS updates EWS1 cladding guidance to ‘unlock’ the market
Updated: Habito launches 40-year fixed rate mortgage with £1bn fund and stepped LTIs
Eviction ban extended – but still no financial support for tenants
NatWest cuts rates and sets up stamp duty broker support line to push cases through
Virgin Money and Atom Bank execs join Perenna ahead of 30-year mortgage launch
Cladding scandal could lead to modest RMBS losses and negative equity – DBRS Morningstar
Analysis from DBRS Morningstar on the impact of cladding looked at 64 securitised UK mortgage portfolios comprising 670,000 loans worth £70bn.
Some 106,000 of these mortgages were taken out on flats in England with 57,000 being owner-occupier and the remaining 49,000 buy-to-lets.
Based on data from September, the credit rating agency deduced house prices would have to fall by 20 per cent to put most high-rise flat owners at risk of falling into negative equity.
South West London would be least affected by such a decline, with just 2.8 per cent of homes falling into negative equity. Newcastle flat owners would be most impacted, pushing 37 per cent of mortgage holders into negative equity.
Although most flat owners would be relatively unscathed by declines in property prices, the analysis found four per cent of leaseholders in Newcastle would need to see just a 10 per cent dip in house prices to fall into negative equity.
In a milder environment, a five per cent price drop would put less than one per cent of most flat owners into negative equity.
Cost of repairs and LTV tiers
Despite the low possibility of large declines in house prices, DBRS Morningstar said borrowers would still be financially impacted by loans to fund repairs.
Last month, the government announced leaseholders of flats in buildings shorter than 18 metres could take out government-backed loans capped at £50 a month, but details on rates or the length of the loans are yet to be confirmed.
The loan will also be attached to the property, not the leaseholder, potentially making the property less desirable and causing its value to drop.
This means even where a drop in value does not result in negative equity, those who are able to remortgage could find themselves paying up to £15 to £140 more if price changes move them to a higher loan to value (LTV) tier.
DBRS based this on rate differences between products under 60 per cent LTV and those above.
The analysis found the owner-occupied flats sampled had an average LTV of 49.6 per cent and the buy-to-let loans had an average of 42.1 per cent LTV.
The analysis suggested a five per cent fall in house prices would move at least three per cent of mortgagees into LTV tiers above 60 per cent, potentially resulting in them paying higher rates.
At the lower end of the scale, this would account for 3.2 per cent of borrowers in East London, while 9.3 per cent of mortgage holders in Portsmouth would be in LTV bands above 60 per cent.
As for borrowers moving into LTV tiers above 75 per cent, where rate differences are often more stark, a five per cent fall in house prices would impact West London flat owners the least, pushing just 3.1 per cent into higher LTV bands.
Manchester leaseholders would be most affected, with 13.8 per cent shifting onto products with potentially higher rates if prices fell by five per cent.
Added remediation costs
Additionally, DBRS Morningstar said the £5bn fund covering properties taller than 18 metres would fund some costs but did not include fire safety repairs unrelated to cladding.
The analysis suggested the cost of such remediation would not vary as much as property value.
With this in mind, DBRS said a repairs bill of £35,000 would account for 36 per cent of the average value of a flat in Newcastle and seven per cent in West London.
Therefore, a £35,000 devaluation of a cladding-affected property to offset the loan could put 56.3 per cent of Newcastle borrowers in negative equity, compared to 27.7 per cent in Glasgow and just 0.3 per cent in West London.
Even with lower costs, a £10,000 devaluation would still push 9.4 per cent of Newcastle flat owners and 1.2 per cent of Glasgow flat owners into negative equity.
None of the other 18 locations analysed – including Manchester, Brighton and Southhampton – would see more than 1.4 per cent of leaseholders fall into negative equity with a £10,000 house price drop.
Ketan Thaker, head of European RMBS and covered bonds at DBRS Morningstar, said: “Borrowers are likely to face higher mortgage costs because of an increase in their mortgage LTVs ratios, either as result of reduced flat values or additional debt undertaken to fund repairs.
“DBRS Morningstar’s analysis shows that, assuming that borrowers can remortgage, they may still face higher monthly payments in most cases. Furthermore, the impact could be much more severe for borrowers if they cannot get a new mortgage and have to move onto the lender’s standard variable rates, which tend to be higher.”
RMBS portfolios at a modest risk
The analysis estimated fire safety issues would lead to defaults and losses in RMBS portfolios but said this was less of a concern as more than half of the high-rise buildings in England were estimated to have no cladding.
Data from the Ministry of Housing Communities and Local Government (MHCLG) published in November estimated that as of April 2020, 44 per cent of the 88,000 high-rise buildings in England were unclad.
This suggests that with an EWS1 form, the majority of leaseholders will be able to remortgage or sell their properties.
Repossessions pose the most threat to RMBS investments but with the progress being made to remediate properties, DBRS said this could take years to be realised if leaseholders are unable to continue paying for repairs.
In the 12 months before the lockdown and restrictions on evictions were imposed, there were 7,750 repossessions, accounting for 0.06 per cent of total mortgage stock. While an increase is expected after the pandemic, DBRS said this would remain low resulting in a modest impact on RMBS investments.
Across the portfolios sampled, a 10 per cent haircut on repossessions – the below market price on property that is being resold – would lead to losses of no higher than 0.5 per cent.
RICS updates EWS1 cladding guidance to ‘unlock’ the market
The ‘valuation of properties in multi-storey, multi-occupancy residential buildings with cladding’ guidance was consulted on by lenders, valuers and fire safety experts for two months. The recommendations are set to be implemented by 5 April.
The new advice now requires buildings of any height with high pressure laminate (HPL) cladding to obtain an EWS1 form, a requirement which was not included in the original guidance.
Buildings which are five storeys or higher with combustible cladding with balconies that are linked or vertically stacked with combustible materials such as timber will also need a certificate.
For buildings over six storeys, an EWS1 form will be needed if there is cladding or curtain wall glazing.
Meanwhile, for buildings of five or six storeys, a certificate is required where there is significant cladding or HLP, metal composite material (MCM), or if aluminium composite material (ACM) panels have been used.
For buildings of four storeys or fewer, a form is needed if there are ACM, MCM or HPL panels present.
Properties which are five or six storeys tall will not need to be inspected if they do not have ACM, MCM or HPL cladding or if any cladding used covers less than a quarter of the building.
The guidance also said if a lender or valuer is sure a building owner has met the criteria in the consolidated advice note which was issued by the government in January 2020, an EWS1 form will not be needed. A form will also not be needed for buildings taller than 18 metres with a valid building control certificate in accordance with building regulations.
Buildings which already have an EWS1 form will still be valid despite the updated guidance and this applies to a whole building or block for five years.
Guidance for consumers will also be published to inform buyers and sellers of the risks around high-rise buildings.
‘Unlocking the market’
Dame Janet Paraskeva, chair of the RICS standards and regulation board, said: “This announcement is a crucial step in unlocking the market, by ensuring that only those buildings where there are risks of costly remediation as a result of safety concerns from cladding are subject to additional checks.
“The guidance is anticipated to result in a reduction in the number of EWS1 requests which will therefore allow more focus on the assessments of higher risk buildings, which should speed up the overall process while ensuring appropriate protection for lenders and purchasers.”
In a joint statement, UK Finance and the Building Societies Association (BSA) said they welcomed the final guidance and expected the number of EWS1 requests to fall as a result. However, they said it would still be up to lenders to make risk-based decisions.
“Government confirmation that it supports the guidance produced by RICS as an appropriate, risk-based and proportionate basis on which to proceed with valuation assessments, in line with the building safety Consolidated Advice Note published in January 2020 is a welcome and necessary step for lenders,” they said.
“We anticipate that many lenders will implement this guidance, which should see the number of EWS1 requests fall. However, this is a decision for each lender to make based on their own risk appetite.
“Those buying a flat should understand that a decision made by a valuer not to require an EWS1 inspection under the new guidance is no guarantee that fire safety remediation works will not be required in the future.”
Housing secretary Robert Jenrick added: “I welcome RICS new guidance which will mean nearly 500,000 leaseholders will no longer need an EWS1 form – helping homeowners to sell or remortgage more quickly and easily.
“We need a sensible, proportionate approach to risk and costs should only be incurred where they are absolutely necessary and less costly and intrusive mitigations can’t be put in place.”
“Backed by nearly £700,000 government funding, over 500 assessors have now started training so that where valuations are needed these can be done more quickly, speeding up the process for homeowners,” Jenrick said.
Taylor Wimpey sets aside £125m for cladding but critics hit out at piecemeal approach
The house builder said the money would cover improvement works on more than 200 blocks of flats built over the past 20 years.
Thousands of leaseholders have received eye-watering bills for cladding removal and other fire safety defects discovered after the Grenfell Tower fire in 2017.
Many flat owners have considered bankruptcy after MPs refused to back amendments to the Fire Safety Bill which would protect them from the extortionate costs.
About 1 million flats in England are thought to be unmortgageable due to cladding issues.
Taylor Wimpey, which is currently being investigated by the Competition and Markets Authority (CMA) over the mis-selling of leasehold houses, said its key priority was “doing the right thing for our customers”.
The £125m fund will support fire safety improvement works for leaseholders in Taylor Wimpey apartment buildings, including those below 18 metres, to ensure they meet current Royal Institution of Chartered Surveyors (RICS) EWS1 guidance.
Taylor Wimpey said in a statement: “This is a complex and exceptional situation, but Taylor Wimpey is focused on doing the right thing for its customers.
“The board has determined that we will fund and oversee the improvement works of apartment buildings in our ownership, regardless of eligibility for the UK Government Building Safety Fund, to make them safe and mortgageable by achieving EWS1 certification.”
But not every block built by Taylor Wimpey will benefit from the cash. Where Taylor Wimpey does not own the building anymore, it will only “contribute funding” dependent on plans put forward by freeholders.
The statement said: “If Taylor Wimpey no longer owns the building and it is not eligible for the Building Safety Fund, or similar support that may be announced in the future, where a freeholder produces a fair and proportionate plan for fire safety improvement works following EWS1 assessment, we will contribute funding to bring those buildings up to the standards required by current RICS EWS1 guidance.
“While the legal responsibility continues to rest with the building owner, we will also provide advice and other assistance where appropriate.”
In a tweet, housing secretary Robert Jenrick praised the move by Taylor Wimpey and urged other developers to “step up and help protect leaseholders from these costs.”
But Liam Spender, a lawyer specialising in cladding issues, was not impressed and tweeted: “Congratulating TW for belatedly putting up less than 1% of the estimated £15bn cost with all manner of strings attached speaks volumes, as does the fact TW expects defects at some of its buildings to be paid for exclusively by the taxpayer.”
IMLA brands govt cladding funds ‘completely unacceptable’ and calls for SMI rethink
Kate Davies, executive director of IMLA, said it was “completely unacceptable” to expect leaseholders to cover the costs through government-backed loans.
IMLA also estimated the cost to remove dangerous materials from high rise homes was £15bn, three times more than the £5bn the government has committed so far.
More support for borrowers financially affected by the pandemic was also suggested by IMLA, in the form of a rethinking of the Support for Mortgage Interest (SMI) rules.
It said tying the loan up with Universal Credit payments meant borrowers who do not have this benefit would be prevented from accessing SMI which may still be necessary if they lose all or part of their income.
IMLA said extending SMI to more borrowers would provide them with a lifeline and stop people from possibly losing their homes.
Stamp duty and climate change
The association proposed a flexible winding down of the stamp duty holiday rather than postponing the deadline to June, as it said that would avoid pushing the possibility of cliff edge to a later date.
Davies added: “The current stamp duty holiday deadline of 31 March has created unprecedented levels of activity and put a huge strain on lenders and conveyancers as they race to complete transactions in time.
“We have asked for some flexibility to avoid penalising those who miss the deadline, very possibly through no fault of their own.”
IMLA also suggested a more joined up approach to addressing climate change within the housing market following a Business, Energy and Industrial Strategy (BEIS) report which suggested lenders declare the average EPC rating of their mortgage book.
Davies said: “Climate change is a huge issue and lenders support the government’s ambition to build back better and focus on green initiatives.
“The Green Homes Grant was well intentioned, as was a recent BEIS consultation on improving home energy efficiency, but we think this challenge requires a much wider and more ambitious cross-government strategy, rather than a piecemeal departmental approach.”
“Protecting the UK’s housing market should be high up on the chancellor’s priority list for this Budget,” she added.