Government has not convinced lenders low-rise buildings are less risky – Marketwatch
At the time, a handful of lenders committed to adapting their stance for lower properties according to the new guidance but no official changes have been made since.
So this week, Mortgage Solutions is asking: Have you noticed any change in lender attitude towards low-rise buildings or do they still seem hesitant to lend without an EWS1 form?
Aaron Strutt, product and communications manager at Trinity Financial
I don’t think anyone knows the answer to this as such – even speaking to the lenders, many are choosing to follow RICS guidance over the government.
Some of the big lenders are still asking for the form and many have said they’re expecting the government could change their minds again. In the past, there have been updates, only for the guidance to change once lenders adapted.
In case they want to sell a portfolio of mortgages which consists of flats with cladding in the future, they want a report to confirm the property is safe. Just scrapping it based on government advice doesn’t seem like a very good idea for them at the moment.
One lender was saying freeholders and developers are getting the forms pre-empting any requirements, but others were saying they think tenants and flat owners are handling it themselves, then forwarding it to management agents to be signed. This is because there hasn’t been any urgency to get this done.
Overall, lenders are taking fewer questions and accepting more applications from those in flats, but if there is any cladding present, they ask for the report.
At the same time, some of these homeowners know they won’t be able to refinance until checks are done so there’s no point in shopping around and asking which lenders won’t need the report because most will.
We’re not getting as many calls as we previously did about this either.
There was a time not that long ago where it seemed every case had an issue with the EWS1 form and lenders were inundated with applications and there weren’t enough inspectors to sign everything off. It has slowed down and doesn’t seem to come up as much.
Dina Bhudia, managing director and CEO of P2M Assets
There hasn’t been much change. Lenders aren’t following the new stance because the property is their security. The risk on their part in most cases is far more than our clients are because the level of lending is generally more than our clients’ equity.
The conversations with developers about how any action will happen, such as who will pay for remediation, is all still in the pipeline. Nothing has been ironed out.
Lenders are reliant on valuer’s comments and they’ll only lend based on what a valuer says, which makes it hard without an EWS1 to cover them. They won’t recommend a lender to lend if they don’t have documented evidence to say it’s safe.
With regards to whether there’ll be any changes in attitude soon, business development managers just agree with valuer comments and say if valuers recommend it, that’s our policy.
I don’t deal with many clients who have cladding issues anymore but recently, I did have a case come through.
The valuer said he thought there was cladding on the roof but he couldn’t check, so the lender refused to lend. But on a high-rise flat, if there’s cladding on the roof, the valuer would never be able to check that. But the minute he says he thinks there’s cladding, the lender says ‘no sorry’.
Ben Robbins, mortgage and protection adviser at Trufe
With the recent announcement of the government scrapping the EWS1 forms below 18 metres, you would hope to see a change in lender stance and an ease on the requirements to offer a mortgage on these properties, at least.
You’d be wrong.
The only significant change in the industry when it comes to the cladding situation was the announcement of guaranteed funding for removal of dangerous cladding in all properties over 18 metres.
We are still seeing the need for proof of certificates needed to show that work has been completed to remediate the issues that saw the tragedy at Grenfell unfold.
Some lenders have moved to a basis that they will require the certificate, based on the valuer’s comments. This doesn’t give much confidence when we have a history of valuers being overly cautious on the properties they assess, so most brokers will more than likely take this as a need for the form on all cases.
This is understandable though because if anything happens in the future, it’ll be on the valuer.
Only a few lenders will accept a property with cladding. For their level of risk and homeowner safety, it makes sense that they will need the necessary documentation for a property before they lend.
As well as building regulations that were in place at the time, this would never have happened if the government didn’t take fire safety checks on buildings away from the fire brigade and transfer it to private firms. Fire safety officials probably would have been able to see that the cladding was unsafe earlier, but unfortunately it took a tragedy to see change.
Santander is a little more lenient as they require a headed letter from the building owner or management company confirming whether work is needed or complete. However, for now, before submitting that application, it would be best to check that all forms are in place.
Overall, I think lenders are well within their rights to refuse to lend, if I’m honest, because I also wouldn’t suggest someone buy a property if they knew it had cladding.
New-build transactions down by 92 per cent due to EWS1 delays, says developer
According to property developer StripeHomes’ analysis of Land Registry sold price data, transaction levels for new-builds fell by 92 per cent to 2,605 in the first half of 2021. The developer said this was down to the “problematic” EWS1 process.
The largest decreases were recorded in the North East, where transactions declined by 96 per cent to 78, and the North West, which fell by 95 per cent to 261.
This was followed by the East of England and East Midlands which both fell by 94 per cent to 246 and 194 transactions respectively.
StripeHomes managing director James Forrester said: “This [EWS1] requirement has seen many sales drag on for months on end, with inspectors unable to facilitate such a huge level of inspections and banks refusing to provide mortgages until they do.”
He added that despite altered government advice which urged lenders to stop asking for the document on properties under 18 metres tall, there was an “industry stalemate” as banks refused to lend unless official Royal Institution of Chartered Surveyors (RICS) advice was amended.
Forrester said: “Ironically, while they drag their heels, thousands of new-build homebuyers remain in limbo and it doesn’t look as though a solution is on the horizon anytime soon.”
The report added that on average, new-build homes sold for £314,000 between January and June, which was six per cent up on the same period last year.
The West Midlands experienced the biggest growth, with new-build homes selling for £299,998, which is up from £250,000.
This was followed by the North East, where prices grew by 17 per cent to £239,950, and South West, which was up by 14 per cent to £337,748.
All regions experienced price growth bar three regions, with new-build prices in Yorkshire and Humber contracting by £40,050 to £174,950, whilst newly built homes in the North West fell by six per cent to £211,000. In the East Midlands, new-build prices decreased by one per cent to £252,498.
Government cladding remediation bill reaches £578m
More than half of the £1bn fund announced in the Budget of March 2020 has been spent on works on private and social housing as of 31 July 2021.
The Building Safety Fund was to be allocated to works on blocks of 18 metres or higher in 2020 to 2021.
The private sector accounted for the majority of the money allocated, at a total value of £499.2m. The value of the money approved for the social sector stands at £78.7m.
In total, 2,820 registrations for the fund have been made by the private sector. Of those, 663 proceeded to an application.
Some 477 registrations made by building owners in the private sector were ineligible, while 548 withdrew their applications.
As of 31 July, 342 registrations are under review and 545 have no available evidence to assess their verification for the fund.
Some £318.4m has been provided to remediate 127 residential buildings with non-ACM cladding while £62.4m have been issued to 36 properties with both ACM and non-ACM cladding.
This week, the government revealed it was considering amending the Building Safety Bill to introduce a principle of ‘polluter pays’. If implemented, this will allow the government to pursue remediation and interim safety costs from responsible parties in the construction industry, such as developers and builders, rather than leaseholders or homeowners.
The clause will have no time limitations and will divide building owners into two groups, those that did not comply to building regulation at the time of construction, and those that were compliant when they were built but are no longer compliant following Grenfell.
Government considering ‘Polluter Pays’ Bill for cladding remediation
The “Polluter Pays” Bill uses the same principle as the law for contaminated land and would allow the government to pursue remediation and interim safety costs from responsible parties in the construction industry, such as developers and builders, rather than leaseholders or homeowners.
The bill divides buildings into two groups, those that did not comply to building regulation at the time of construction, and those that were compliant when they were built but are no longer compliant following Grenfell.
This means the bill does not have time limitations, unlike current law where people have six years from when the building is built to file legal action, which will allow more mortgage prisoners access to funds.
It also works in tandem with government levies and grants, which amount to £5.1bn, and permits emergency grants to those who are on the verge of bankruptcy.
Speaking to this publication, campaigner Steve Day, who is spearheading the bill, said: “Trust in building regulation has broken down. People don’t believe buildings are built safely, so what we are saying is instead of letting the construction industry off with a tax and levy that isn’t good enough for breaking building law, the responsible parties should be held liable.”
He said that this would benefit mortgage lenders as it would rebuild trust in building regulation and compliance and went on to say that it would eliminate the need for EWS1 forms.
It also does not class mortgage lenders, or other financial services, as polluters in its bill unlike other amendments which could seek redress from mortgage lenders.
Lord Greenhalgh, who is minister of state for building safety, leasehold, resilience and emergencies and communities, said in the House of Lords: “We are very aware of the Polluter Pays Bill and the work that is being done… This is something we are looking at very carefully to see if it would further enhance the Building Safety Bill.”
He added that it was already considering extending the legal action time limit from six years to 15 years, but the Polluter Pays Bill could provide further support to ensure that it is the polluter that pays remediation.
The proposal has been greeted positively by the mortgage industry, but concerns have been expressed around how long this process will take to implement.
Robert Sinclair, chief executive of Association of Mortgage Intermediaries, said: “This proposal to resolve the issues on funding the remediation of buildings with unsafe cladding would be a significant step forward to resolving the problems facing residents. However, it will still take time particularly if ministers fail to grasp the opportunity and support these amendments.
He added: “Whilst these proposals are welcome it will take some time to avoid the need for EWS1 forms and too long to resolve the structure of many high-rise buildings. It is right that government should be funding all replacement and repairs and then recovering the cost from those they deem responsible – rarely those who currently occupy the properties.”
The Intermediary Mortgage Lenders Association’s chief executive Kate Davies said that these latest proposals could lead to “meaningful progress” to the cladding crisis.
She said: “By shifting the balance and making developers front building remediation costs, we can hold those who failed to properly construct these dwellings to account, remove the cost burden currently unfairly placed on individual homeowners, and speed up the process of remedying unsafe homes.
“This isn’t going to be a perfect solution and there will be instances where building developers cannot be found to front the costs, especially where they are no longer in operation, but it would be a step in the right direction. Any initiative that helps to ease the immediate dilemma for borrowers and gives mortgage providers the reassurance to lend on safe properties, should be welcomed.”
A Ministry of Housing, Communities and Local Government spokesperson said: “Our priority is making sure residents are safe and feel safe in their homes by removing dangerous cladding from the highest risk buildings as quickly as possible backed by over £5bn.
“We have been clear throughout that owners and industry should make buildings safe without passing on costs to leaseholders – and we will ensure they pay for the mistakes of the past with a new levy and tax to contribute to the costs of remediation.”
Top 10 most read mortgage broker stories this week – 06/08/2021
Meanwhile our piece on protection by guest columnist Rodney Sloan of Just Mortgages was just the ticket for brokers whose business has eased off in line with the stamp duty holiday taper.
Buyout potential is riding high for broker bosses with an exit strategy
RIO affordability barriers solved with life cover, says LiveMore
With the stamp duty rush over it’s time to look afresh at clients’ protection priorities – Sloan
FCA asks financial firms to review staff pay in inclusivity bid
Charles Cameron sold to Socium as group plots nationwide expansion under new brand
Halifax brings in sub-one per cent remortgage deals
Cladding policy needs coherent, science-based data before real change happens – Baguley
Falling mortgage interest rates offer remortgaging borrowers bumper savings
JLM AR firm launches campaign to give deaf community access to advice
Government scraps EWS1 forms for buildings under 18 metres
Cladding policy needs coherent, science-based data before real change happens – Baguley
While many of us close to this had advance sight of recent thinking by four experts, the content of the statement nevertheless still took almost everybody by surprise. The question though is it science-led, is it politically motivated or is it a combination of both perhaps?
Just when cladding appeared to be in a steady state since the Royal Institution of Chartered Surveyors (RICS) Guidance Note of April this year – accepting that some might disagree with its content – the ministerial statement also brought about a sense of déjà vu in the form of a statement which had the potential to significantly alter the market’s approach.
Which is to be welcomed but only if evidence exists to support it.
But we have been here before, RICS launched the EWS and then Ministry of Housing, Communities and Local Government (MHCLG) issued its Consolidated Advice note within weeks.
In November last year, MHCLG announced buildings without cladding didn’t need the EWS. Interesting, given that the EWS has only ever been needed where a building had a wall system.
The question, however, is whether buildings below 18 metres are now safe and do not need value affecting works – as the ministerial announcement suggests.
Looking at the science
To answer this, we need to look at the science. There is a headline-grabbing programme where costs will be capped at £50 per month, but no further detail has emerged and a launch date has not been set.
There is also a multi-billion pound fund for above 18 metre buildings, but the amount is not enough and does not cover ancillary problems found when a wall system is removed.
The Consolidated Advice Note (CAN) will be withdrawn and replaced with PAS9980 but the CAN remains very much alive and well and PAS9980 does not declare sub 18 metre buildings free from defect. It does however provide a proportionate basis for assessment, so at least we have positive there.
Looking at the statement, we absolutely support finding a solution and would dearly like to move to a point where the EWS is made redundant. But can we marry the words with the science? I’m struggling and I suspect many are too.
No immediate resolve
Not unsurprising therefore that the recent statement made by housing secretary, Robert Jenrick which said EWS forms are not required below 18 metres is not exactly one that can be delivered.
Certainly not immediately.
Yes, we need a solution, but to get there we need coherent, well thought out advice, issued after consultation with the parties charged with its delivery, not statements which ignore the real problem.
Equally, the solution is not focussing on replacing the incumbent leaseholder with a new leaseholder; the original reason why we are here just simply remains.
We can’t ignore the known knowns. We know all buildings will be inspected once the Fire Safety Bill is enacted and unless the fire engineers agree that sub 18 metre buildings are defect-free, other parts of the market can’t ignore the fact that value affecting works are very likely to be required.
We need to get to a place that when works are recommended that they are proportionate to this risk. And the fire engineer bodies have a significant role to play here.
As ever, the devil is the detail and there is still a very big devil in the current detail. This statement has only added further confusion to an issue which requires handling with the greatest of care and sensitivity.
Words without substance hinder rather than help.
Getting to the root of the problem
We are keen to find a solution, but the solution has to work and get to the root cause of why a building is affected and what the costs will be, we need this to give professional condition and valuation advice
In a nutshell it is business as usual, but we urge government to accelerate withdrawal of the CAN and the introduction of the PAS.
We also continue to call on government to support the professional indemnity (PI) position. We are making this call through the various groups we sit on and will continue to support lenders to ensure policy remains reflective of the latest position.
Unfortunately, the need for a building to be checked below 18 metres will remain until such time as different government advice emerges.
Some might say valuers can drive this, but we value based on what we know. What we know is that flats with cladding require inspecting by a competent fire engineer to confirm either the wall system is free of flammable materials and has been assembled correctly or if not, what is needed and what will the cost be.
We can only hope that an appropriate solution and greater clarity emerges sooner rather than later for everyone connected to this building safety problem.
In the meantime, Countrywide Surveying Services will continue to support industry as it navigates this through its involvement with UK Finance, the Building Society Association and my role as chair of the RICS EWS Working Group.
Government scraps EWS1 forms for buildings under 18 metres
The statement from Robert Jenrick follows advice from fire safety experts in a review that was commissioned by the government earlier this year.
The review found there was no systemic risk of fire in medium and low rise-buildings.
It said fire risks should be managed where possible through measures such as alarm systems or sprinklers but analysis showed the majority of buildings under 18 metres did not require expensive remediation.
It found there was a downward trend in the number of residential fires in England, with 91 per cent taking place in houses, bungalows, converted or low-rise flats, while blocks of flats of four storeys or more accounted for nine per cent of incidences.
HSBC, Barclays and Lloyds Banking Group are among the banks expected to amend their practices in line with the new advice.
The Responsible Person for all blocks of flats will continue to have a legal duty to ensure properties have an updated fire risk assessment to identify issues and the need for remediation. This will include the installation of sprinklers, alarms and in extreme cases, the removal of flammable materials.
To help with this, new guidance for the risk assessment of external wall systems will be introduced. The PAS9980 fire risk assessment will ensure inspections are proportionate to risk and actions are cost-effective. The Consolidated Advice Note which was published in January last year will be withdrawn.
For buildings under 18m which do require remediation, the government will still offer a financing scheme which will see leaseholders pay no more than £50 a month to replace unsafe cladding. Details of the scheme are expected to be announced soon.
Developers to pay for historic defects
The government has also set out plans for developers of high-rises in England to contribute to the cost of remediating these buildings.
A consultation published today said a levy will be applied when developers seek permission to build certain high-rise residential buildings of 18 metres or more in height.
The money generated will contribute towards fixing historic fire safety defects, including unsafe cladding. The government said this would protect leaseholders and taxpayers from taking on the burden of costs.
The government is calling for views on the proposed design of the levy, which was first announced earlier this year.
It has also been confirmed that the Building Safety Fund will reopen for applications in autumn for any eligible buildings that missed the original deadline in June.
Jenrick said: “Today’s announcement is a significant step forward for leaseholders in medium and lower-rise buildings who have faced difficulty in selling, anxiety at the potential cost of remediation and concern at the safety of their homes.
“While we are strengthening the overall regulatory system, leaseholders cannot remain stuck in homes they cannot sell because of excessive industry caution, nor should they feel that they are living in homes that are unsafe, when the evidence demonstrates otherwise.”
He added: “That’s why I commissioned an expert group to further examine the issue, and have already agreed with many major lenders that lower-rise buildings will no longer need an EWS1 form, and the presumption should be that these homes can be bought and sold as normal.
“We hope that this intervention will help restore balance to the market and provide reassurance for existing and aspiring homeowners alike. The government has made its position very clear and I urge the rest of the market to show leadership and endorse this propionate, evidence based, safety approach.”
In a joint statement, UK Finance and the Building Societies Association, said: “Flats should be safe places to live, so we welcome the government’s expert panel view that there is no systemic risk from fire in medium and lower rise blocks.
“We also welcome the actions the government has outlined today, including the withdrawal of the current Consolidated Advice Note on cladding, and urge them to continue to work with relevant stakeholders to ensure all documents, including the RICS guidance, align with the views of the expert panel.
“Once these changes are made both borrowers and lenders should be in a clearer position and know what is expected of them.”
Top 10 most read mortgage broker stories this week – 02/07/2021
Product changes also dominated, including Santander’s update to its proof of deposit criteria and TSB’s removal of higher fee remortgages. The Bank of Ireland’s decision to cull its mortgage sales team was also among most read this week.
Santander updates proof of deposit requirements
Majority of brokers want SDLT extension but many argue for ‘return to normal’
Stamp duty savings wiped out by inflated house prices – MIAC
TSB launches sub-one per cent deal and pulls high-fee remortgages
BOI mortgage sales staff to be cut from 17 to 12 through consultation
Santander adds £1,000 cashback to FTB deals; Leeds BS reduces rates on ERC-free range
EWS1 lender requests still a ‘grey area’ and ‘mess’ despite updated RICS guidance – analysis
Metro Bank hints at further expansion after ‘more product changes than most’
‘Brokers who have not relied on stamp duty holiday will do best going forward’ – Marketwatch
UK economy shrank more than first thought during third lockdown
London mayor urged to block funding for developers not supporting cladding-hit leaseholders
The motion, proposed by member of the London Assembly Hina Bokhari, also requested for the establishment of a fire safety victims support hub and the trial of a public fire safety risk assessment register in the capital.
The register will be similar to the Energy Performance Certificates and enable prospective buyers or renters to see the fire safety rating of a home.
Additionally, the mayor was asked to ensure both Building Safety Fund and Waking Watch Relief Fund applicants hear back from the Greater London Authority regarding their applications in a timely manner.
The Assembly is also lobbying the central government to remove the burden of remediation costs from leaseholders.
Bokhari said: “We need to listen victims of this crisis and represent their needs.
“Of course the government needs to do more to comprehensively deal with the building safety crisis, and many of us will keep pushing for this. Yet it is too easy just to call on the government. We need to look at the levers and powers the mayor has to ensure far more is done to support those affected by this shameful scandal in London.
She added: “With an affordable housing budget of over £4bn the mayor could send a clear message to developers by refusing to work with those who are yet to take action to remediate fire safety issues in their existing stock. There are numerous other actions the mayor could take to support leaseholders.
“We need the mayor to couple warm words with action. As well as lobbying government he needs to use his powers and levers to their full extent to give practical support to the thousands of Londoners impacted by this terrible scandal.”
EWS1 lender requests still a ‘grey area’ and ‘mess’ despite updated RICS guidance – analysis
Some lenders stand by the belief a form is needed in order for them to lend, although guidance issued by RICS in March said they would not be required for buildings taller than 18 metres with a valid building control certificate.
Properties which are five or six storeys tall with either no visible cladding or cladding that covers less than a quarter of the building are also exempt, according to the guidance.
However, government advice issued to building owners in January last year states properties of any height need to be assessed for the presence of cladding. This means there is no certainty regarding the safety of buildings which have not yet gone through the process.
Additionally, RICS’ recommendations do not validate buildings which appear to be built by stones or bricks but in fact, have a brick or stone slip external wall system which includes cladding. The possibility of combustible materials being used in decorative panels between floors and walls is also uncertain without an inspection.
Remediation costs can potentially affect the value of a property as well, so RICS acknowledges that “lenders are unlikely to lend until remedial work has been completed, but some may choose to do so with retentions and the like based on their own risk appetite”.
Although lenders are encouraged to adopt RICS’ proportionate guidance to lessen the number of requests for an EWS1 form, UK Finance also admits “this is a decision for each lender to make based on their own risk appetite”.
As a result, the final judgement on whether a form is required ultimately lies with lenders and brokers are having a tough time trying to influence opinions.
Nicola Schutrups, managing director of The Mortgage Hut, said her firm’s attempts to overturn EWS1 form decisions had been unyielding.
She said: “We have had a client who we put in an application for with Halifax and we’d already completed on a couple of properties within the same development using the EWS1 form.
“But then, the particular surveyor on this case wouldn’t accept the EWS1 form that had already been used on other properties within the same block.”
There was no way around the decision even after going through the business development manager (BDM), Schutrups said. The client ended up paying for a new form as the developer refused to issue another one, as other properties had completed using the existing document.
“It’s just a bit of a grey area, who’s responsibility it is. The freeholder is obviously trying not to spend money. It’s the leaseholder who’s normally desperate to sell the property and it’s our client who’s trying to buy.
“So, we have seen some cases where the client ends up paying and then some where the leaseholder has tried to get it done but then has restrictions because obviously, it’s on the whole property. So, it’s all just been a bit of a mess,” she added.
Jane King, director and mortgage adviser at Ash Ridge, also tried to challenge the decision made on a property under 18 metres. She was told it was “standard practice for [the lender] to request the form in respect of wall insulation materials and nothing to do with cladding”.
RICS guidances also suggests forms may be requested for buildings under 18 metres as properties of four storeys or fewer may have the “most dangerous types of cladding present”.
Managing partner at Boon Brokers, Gerard Boon’s attempts have also been futile and resulting in rejections for cases where a form has not been produced.
“The lenders that have declined our cases for that reason are adamant that from their interpretation of the legislation around EWS1 forms, it is a requirement in order for them to lend,” he added.
Some lenders such as Santander are taking a more flexible approach, he said, and instead are asking building managers a series of questions around the construction of properties so they can proceed with that knowledge.
“There are very few lenders in the market that currently share this policy with Santander,” he said.
Stephanie Charman, head of strategic relationships, lender at Sesame Bankhall Group, said assistance could be available through network and club helpdesks.
She said Sesame’s lender relationship team was able to support brokers by using the “strength and breadth” of its relationships to get involved where EWS1 forms were being requested unnecessarily.
Charman said: “We have an established process for adviser and customer cases that require escalation to lenders, regardless of the issue. In the case of a EWS1 form, the process would involve discussing the detail of the property with the adviser, along with the reason why they feel the EWS1 form is not required.
“Before approaching the lender, we would do additional checks against the RICS guidance and individual lender criteria. We would then escalate the case through our lender relationship team, with a view to addressing the adviser’s concerns, requesting that the case is reviewed based on the reasons why we feel the form is not required.”
She added: “We sometimes find that there’s information the adviser has not been made aware of, which has impacted on the lender or valuer’s decision. We’re not always able to overturn a lender’s decision, but we’ll endeavour to support the adviser and their customer to get the right outcome for all parties.”
She also pointed to RICS’ ‘frequently asked’ section on its website, saying advisers and borrowers can find more information on what kinds of properties would require EWS1 forms and clarify why some decisions might be made.
“Whilst lenders have now adopted this new guidance, there can be instances where confusion might still arise on some properties,” she added.