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.
Cladding, JBSP and expat deals add to rising number of broker queries – Primis
Questions most commonly focused on cladding, joint borrower sole proprietor products and expat borrowing.
Primis’s product desk answered 2,123 queries in total in July, compared to a monthly average of 2,083 last year.
The cladding issue drew questions trying to clear up confusion about criteria for EWS1 forms. The joint borrower sole proprietor queries reflected growing numbers of parents looking to help offspring get on the property ladder.
Finally, expat questions related to concerns that lenders may stop offering products to these borrowers owing to Brexit and this would preclude those clients from switching deals.
Vikki Jefferies, proposition director at Primis (pictured), said: “These figures demonstrate the success of our product desk, with the increase on July last year especially interesting given the high levels of market uncertainty at that time. Obviously we’re very pleased brokers have continued finding value in our support.
“There are still challenges in the market and we will continue to invest in our broker relationships and provide support through our product desk and virtual experts webpage,” Jefferies added.
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
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With the stamp duty rush over it’s time to look afresh at clients’ protection priorities – Sloan
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Cladding policy needs coherent, science-based data before real change happens – Baguley
Falling mortgage interest rates offer remortgaging borrowers bumper savings
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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.
Top 10 most read mortgage broker stories this week – 23/07/2021
The government’s decision to remove the need for an EWS1 form when lending on buildings shorter than 18 metres was also of interest, as it signified a move which could unlock the market.
Speculation that Foxtons was looking for a buyer for its broker firm Alexander Hall also drew readers in, as did one firm’s decision to refund fees to clients unhappy with their advice.
Government scraps EWS1 forms for buildings under 18 metres
Can you claim the fifth SEISS grant?
Foxtons looks for buyer for mortgage broker Alexander Hall
RIP John Murray, journalist and author (24.06.1947 to 14.07.2021)
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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.”
Lib Dems demand inquiry saying government has failed leaseholders on fire safety
Deputy Lib Dem party leader Daisy Cooper MP (pictured) yesterday proposed a Bill to establish an inquiry into the government’s responses to the crisis, describing the situation as “a national scandal of epic proportions”.
On Monday, the Ministry for Housing, Communities and Local Government introduced the Building Safety Bill giving leaseholders 15 years to take action against developers on fire safety defects.
But Cooper said: “Do the government really think that it is acceptable for leaseholders facing bankruptcy and mental ill health to have to start legal action against huge, powerful housing companies, builders and others when they know that the legal bills could cost more than the remediation work itself and then delay that remediation? This is Alice in Wonderland stuff.”
The leaseholder fire safety crisis began in the aftermath of the Grenfell Tower fire in June 2017, which killed 72 people. The building’s external cladding system was found to have helped the flames spread when fire broke out.
The Lib Dems’ call came ahead of today’s High Court hearing where 800 bereaved and survivors from Grenfell Tower, and 102 firefighters, are bringing their case for tens of millions of pounds in compensation against defendants including the cladding manufacturer, contractor and the Royal Borough of Kensington and Chelsea.
The tragedy has had a ripple effect on leaseholders across the country as lenders pulled back from offering loans on flats discovered to have similar cladding systems to Grenfell’s or other potential fire safety issues.
The Sunday Times started a campaign a fortnight ago setting out its own five-step manifesto for a fairer system for flat-owners. The newspaper said: “Decades of regulatory failure and shoddy construction have left leaseholders living in 200,000 dangerous high-rise homes.” One of the campaign’s aims was to put a single official in charge with a brief to remove all unsafe cladding by 2022.
However, the government has not developed a policy that applies in all cases as to who ought to pay to remove unsafe cladding or fix other fire safety defects.
In February, housing secretary Robert Jenrick unveiled a £3.5bn fund to pay for remediation works for leaseholders in residential buildings of 18 metres or higher. For buildings of 11 to 18 metres, he outlined a government-backed financing scheme.
Meanwhile, the EWS1 form created by the Royal Institute of Chartered Surveyors was supposed to smooth the path for lending on leasehold flats, but their efficacy has been muted as lenders continued erring on the side of caution.
The Lib Dems’ proposed Bill will be read for a second time on 10 September.
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
The housing minister ‘is talking nonsense’ on EWS1 form – Star Letter 11/06/2021
This week, cladding guidance form EWS1 and the new regulatory consultation CP21/13, from the Financial Conduct Authority, got readers’ fingers typing.
The claim by housing minister Christopher Pincher that half a million leaseholders would be freed from the requirement to supply an EWS1 form to their mortgage lender was met with incredulity.
Martin31, said: “I am afraid Mr Pincher is talking nonsense. The government’s supposedly independent expert panel caused the utter mess we now have. With Advice Note 14, they effectively asserted they had arbitrarily withdrawn compliance, with building regs as the standard measure of a building reaching an adequate safety standard. The surveyors were then encouraged to design a valuation methodology for lenders and things have gone down hill ever since.
“We are now effectively on the third or fourth iteration of EWS. The insurance companies do not support it and some of the lenders do not agree. The government has twice tried to spin the story that fewer blocks need a survey but so long as any lender says they do want a survey the market is in a mess.
“RICS has also changed its mind on who can carry out a survey and a small proportion of fraudulent surveys have been created. The consolidated government advice published in Jan 2020 scuppered any update to excluding EWS on under-18 metre buildings, as it now says buildings of any height need to be checked.
“So, even if a building is lower than 18 metres and less than 25 per cent clad, it’s still a “building of any height,” so does fall within the government guidance to check.
“The only solution will be for government to take back some form of responsibility for deciding what is and isn’t safe, as has happened in Australia and Scotland. If not, then we will continue to have different assessments from different EWS practitioners and different lenders taking different views with insurance companies still deciding they’re not happy.”
‘We need good regulation’
Meanwhile, the regulator’s call for views on its proposed new Consumer Duty regulation (CP21/13), elicited a robust response.
LankyDes said: “Usual balderdash from the FCA employees who have to justify existence.
“I did my first mortgage in 1983. In those days in the bank I worked for, it was a disciplinary matter if you told someone that the endowment wasn’t guaranteed to repay the mortgage. I told every customer I ever saw. Treat people how you would want to be treated yourself. I was brought up by my parents that your conscience is far more important than your employer’s rules or the regulations of those who can’t do, and probably can’t even teach, but regulate. So I will take no lessons from the FCA in thinking how customers want to be treated.
“In 40 years in the industry, I haven’t gained a single insight from the FCA or its predecessors. I had affordability calculators years before most lenders, and very useful they are. They aren’t God, however, which is what the FCA has influenced lenders to make them.
“I’m not one of these people who condemns regulation or condemns health and safety, etc. We need good regulation but sadly we don’t have it.”
Challenges with fire risk and mortgages on flats to rumble on for years
The supplier of valuation panel services brought together lenders, brokers, surveyors and other property professionals in a session that revealed a litany of unresolved issues related to fire safety and lending on flats.
There were calls on government to de-risk the situation by underwriting cases until a reasonable level of clarity was restored to the market.
Hiten Ganatra, managing director at Visionary Finance, said: “It’s causing an issue, because in the absence of having the EWS1 form lenders are effectively saying we are unable to lend and it’s putting our clients on standard variable rates (SVRs), until some level of comfort can be provided to evidence that the building is fire safe.
“We have clients on SVRs waiting for management companies to provide documents, to give the new lender certainty that there are no issues with the cladding.”
An audience poll revealed that 55 per cent of property professionals believed that the EWS1 form “is working,” however this left 45 per cent who thought it was not.
Lenders on the panel pointed to differences in quality of building management companies, with documentation often scrappy or non-existent.
They urged brokers to engage with clients about fire risk early in the mortgage application process and to have customers seek documentation, rather than let the issue emerge as an unwelcome surprise when the application is declined.
They added that shopping around cases where an EWS1 form was needed was unhelpful.
One potential bright spot in the situation was the Cladding Portal, which is in development and will let professionals search on properties to discover more on their fire risk status.
Minefield for lenders and leaseholders
However, the wider lack of clarity on fire risk had turned the mortgage market into a minefield, where leaseholders and lenders had no way of knowing if the decisions they made today will in future turn out to have been sound, the lenders said.
The myriad of confusions and challenges in the marketplace included insufficient details from government on policies like funding for remediation works on buildings higher than 18 meters and the £50-a-month repayment loan scheme.
The panel anticipated a possible lack of consistency between the existing RICs EWS1 form and PAS 9980, a new code of practice on fire risk appraisal and assessment coming from the Building Standards Institute in September.
They noted an absence of fire risk assessors and contractors qualified to do remedial works, and building materials.
Meanwhile, valuers faced challenges in the form of possible exclusions coming in future on Professional Indemnity insurance policies, for buildings higher than four storeys.
There were complications on consent to let, because lenders would then be in a position of allowing new tenants to move into buildings where the fire risk status was unresolved.
While flat leaseholders were able to switch products, increased lending to fund remedial works might also be challenging based on affordability.