Updated government cladding policy step toward more ‘palatable solution’ for leaseholders – Rudolf
At a Select Committee hearing, Gove seemed somewhat bewildered that leaseholders of medium-height buildings were being asked to fund the replacement of potentially dangerous cladding, when the problem was not of their making.
It has not taken long for that belief to formulate into a change of government policy and a much more forceful approach towards property developers, who now have until March to come up with a solution. Previous government plans around leaseholders having to take out loans and pick up further debt to fund a solution have been shelved.
Now, I would be the first to admit, that this change of policy is not a panacea for all the ills involved in what still is a ‘cladding crisis’ but it certainly moves us down the road towards what I hope will be a much more palatable solution, particularly for those leaseholders who have effectively been left in limbo in recent years.
There are still problems – as many leaseholders have pointed out, they have already paid a significant amount of money for the likes of 24-hour surveillance of their buildings, there are a number of non-cladding related issues to be addressed with many buildings – often more expensive than the cladding removal costs, and it remains to be seen just how much money can be recouped from the developers in order to fund this work.
Some developers have already acted without the need for a government threat. Others suggest their buildings met the regulations of the time and they shouldn’t be held responsible for that. Others say that it is the provider of the cladding itself who should be more in the firing line.
It is likely therefore that this is an issue which still has a long way to go, and this will be particularly pertinent for those leaseholders who are effectively tied to their property. Those who have not been able to remortgage or sell their properties because, firstly, lenders won’t take the risk and, secondly, neither will any potential purchaser until the problem is sorted.
Conveyancers in a ‘delicate position’
Conveyancers have been placed in a delicate position because of this, especially during a period when the guidance and regulations have changed, and that’s not a position which is going to change anytime soon. Indeed, the likelihood is that we’ll see ongoing regular updates as the government solidifies its own position.
We recently updated the Conveyancing Association’s (CA) guidance on cladding document to help member firms in this area, particularly when it comes to the External Wall System (EWS1) form, its usage, when it’s required, who completes it, etc, because conveyancers have to be clear on cladding, what the fire safety experts identify as is (and isn’t) acceptable, the official documentation, and very importantly, the implications for those who buy properties with cladding attached or indeed other external wall system issues.
The good news however is there does appear to be a recognition of urgency from the government and moves towards an acceptance that leaseholders shouldn’t be held responsible for the ills of a building which they never knew about and were way beyond their control.
This newfound impetus in property matters can also be evidenced by the government’s launch of its open consultation on supporting the greater use of commonhold, rather than leasehold – a view the CA has held for a number of years and one which we support wholeheartedly.
In a way the move to commonhold, putting owners much more in control of their properties and buildings, plus this cladding shift, is perhaps further evidence that we are winning key arguments about how the UK housing market should look, and what we require to get to a much fairer system for all.
As we start a new year that should keep us all motivated, to see the progress that is being made, and to continue our work in making our other aims and plans for the sector more of a reality.
The housing market’s trajectory lies in Boris Johnson’s fate – Hunt
Regardless of your political affiliations, your willingness or otherwise to accept what Johnson said, your take on what the ‘independent’ report by Sue Gray will say and the potential consequences, these exchanges matter and they are likely to grow in importance as the weeks advance.
Calls for Johnson’s resignation are likely to grow if the report is as damning as some people believe (and want) it to be, and what happens next will clearly have consequences not just for the individuals involved but the entire country, including the housing and mortgage market sectors.
You don’t really need to be a student of politics to know that the Conservative Party tends to be a ruthless machine when it comes to determining whether its leaders have passed their sell-by or election-winning date and acting on that belief.
It’s a relatively small number of MP letters required – 54 – to trigger a no confidence vote, which if lost, triggers a leadership election in which the incumbent cannot stand.
In those circumstances, the Conservatives will have a new leader and the country will have a new prime minister, and with such occurrences we will also have a new cabinet which, if recent history is anything to go by, means we get a new housing secretary.
While Michael Gove doesn’t appear backward in coming forward when it comes to matters around housing – witness the recent announcements on cladding and the consultation on commonhold – one might suspect he might have higher offices of state in mind for his future, perhaps even the top job itself.
If Gove exits his department which doesn’t just cover off housing, but levelling up and communities as well, then a new broom might want to sweep clean again. It will be the same party in power, but the momentum might shift.
Transaction speed focus
Over the course of the last few years, I’m aware of a growing momentum in that department to support much-needed measures to speed up the home buying and selling process, which I think we all know can be subject to horrendous delays resulting in millions of pounds being wasted.
Now, of course, civil servants tend to do the bulk of the heavy lifting in these areas and so it will remain the case, but a minister can undoubtedly come in with different priorities and a different focus can emerge.
And, of course, those very same civil servants can move jobs. I read recently that one of the driving forces of the government in this area, civil servant Matt Prior, is moving to focus on leasehold instead of the changes around home buying and selling.
That may not shift the dial, but it has the potential to. And, of course, we’ve not even contemplated other scenarios playing out.
New prime ministers without mandates are often warned to seek them at the earliest juncture – a General Election could return them emboldened or it could mean a completely different party (or selection of parties) making up the government. That would mean considerable change.
And Johnson might be left untouched, but again it depends on how he feels the status quo is delivering for him and his party, just a couple of years before the next election has to be called. More cabinet reshuffles perhaps, a different approach and focus, a belief that policy priorities have to change.
Much like regulation never stops, neither does politics. We will all be impacted and affected by what happens at Westminster over the coming weeks and months and it’s important that we continue to fight our corner effectively to ensure we get the change we want to see and that this market remains the driving force it continues to be.
Regardless of who is resident at Number 10.
Top 10 most read mortgage broker stories this week – 14/01/2022
Ian Wilson’s retirement from his post as head of Halifax Intermediaries and Scottish Widows Bank was also among most read as well as Just Mortgages restructuring its team to accommodate its growth.
Home ownership schemes do not offer ‘value for money’ and inflate prices, Lords report says
Gove cracks down on second homeowners claiming holiday let tax relief
Vida ups proc fees and triples product range alongside brand refresh
Metro Bank changes BTL criteria and ups maximum loan size
Halifax Intermediaries and Scottish Widows head Ian Wilson to retire
Equity release advisers can learn from mainstream rebroking habits – Wilson
Gove gives developers March deadline for cladding remediation plans
Government to consult on tourist accommodation registration scheme
Just Mortgages restructures employed division to manage growth
Rogue landlord banned for five years over ‘shocking’ safety concerns
Gove cracks down on second homeowners claiming holiday let tax relief
From April 2023, second homeowners will have to prove holiday lets are being rented out for a minimum of 70 days a year to access small business rates relief, where they meet the criteria.
Holiday let owners will have to provide evidence such as the website or brochure used to advertise the property, letting details and receipts.
Properties will also have to be available to be rented out for 140 days a year to qualify for this relief.
Previously, some owners of second homes in England could avoid paying council tax and access small business rates relief instead by declaring an intention to let the property out to holidaymakers.
Around 65,000 holiday lets in England are liable for business rates and 97 per cent have rateable values of up to £12,000, meaning they are eligible to pay no business rates at all.
A report from Colliers last year revealed local councils in England and Wales were losing out on £110m due to this loophole.
Currently there is no requirement for owners to provide evidence stating a property has been commercially let out.
Secretary of state for levelling up, Michael Gove, said: “The government backs small businesses, including responsible short-term letting, which attracts tourists and brings significant investment to local communities.
“However, we will not stand by and allow people in privileged positions to abuse the system by unfairly claiming tax relief and leaving local people counting the cost. The action we are taking will create a fairer system, ensuring that second homeowners are contributing their share to the local services they benefit from.”
Kurt Jansen, director of the Tourism Alliance, added: “Establishing these new operational thresholds for self-catering businesses is welcomed by the tourism industry as it makes a very important distinction between commercial self-catering businesses that provide revenue and employment for local communities, and holiday homes which lie vacant for most of the year.
“It is recognition that tourism is the lifeblood of many small towns and villages, maintaining the viability of local shops, pubs and attractions.”
Housing minister asks lenders to allow sub-letting on shared ownership homes
He said this followed on from secretary of state Michael Gove’s statement on Monday, where he said the government would work with lenders to alleviate the burden of cladding remediation costs on leaseholders.
Currently, subletting is restricted except for in ‘exceptional’ circumstances to prevent homes being built with public funds from being used for commercial gain.
The government has now amended its guidance to include building safety as an exceptional circumstance. This could allow shared owners to sublet their homes, subject to the agreement of freeholders.
To reduce costs further, Pincher has also asked lenders to consider extending the consent-to-let period, which is the length of time a shared owner can sublet their home for before needing to convert to a buy-to-let mortgage.
He wrote: “This will save shared owners money they otherwise would have had to pay to convert their mortgage.”
Lenders have also been asked to waive the one per cent annual premium tied to the extension of the consent-to-let period.
Pincher added: “I understand that you will need to assess your organisational risk profile when considering subletting requests from shared owners. I also appreciate you will need to consider how waiving the one per cent annual premium over the course of a consent-to-let period aligns with your responsibilities under competition law.
“I do, however, hope that you appreciate the position that the affected shared owners have found themselves in with regards to building safety through no fault of their own, and that you will make every effort to approve their subletting requests.”
We should not forget the success stories of the new-build market – Marketwatch
This has followed the Competition and Markets Authority (CMA) probing and resolving leasehold mis-selling, the introduction of the Leasehold Reform Bill and ongoing action to improve the quality of new-builds.
While regulators and the government work to iron out issues relating to newly built homes and the companies that construct them, maintaining faith in this part of the sector is imperative as it will be the main driver for the delivery of much-needed housing.
So this week, Mortgage Solutions is asking: Why should buyers continue to trust developers and new-build properties in light of recent challenges?
Mobeen Akram, new homes account director at Mortgage Advice Bureau
Recent high-profile news including the tragedy at Grenfell and leasehold mis-selling, has raised questions from the government as to if some developers’ prioritise profit before quality and customer service.
The All-Party Parliamentary Group for Excellence in the Built Environment (APPG EBE) has published two reports on quality and redress, both recommend the creation of a New Homes Ombudsman.
In January 2021, the independent New Homes Quality Board (NHQB) was established with the objective of delivering a New Homes Ombudsman and a unified code of practice to replace the plethora of current codes in the market.
The NHQB will shift the balance of power in favour of the buyer while improving standards of finish in new homes. The organisation is now poised to launch the new code and begin registering builders for the ombudsman service.
The Building Safety Bill will give government powers to put the ombudsman and code on a statutory footing.
Government has already intervened to create legislation to address the ground rent issue. A few years ago, some housebuilders unnecessarily created leasehold tenures which caused affordability concerns. The Leasehold Reform (Ground Rent) Bill was introduced which capped ground rents – protecting leaseholders from steep costs. The CMA has successfully worked with builders to address retrospective issues.
Cladding is more complicated.
The challenge is identifying where the blame lies and where redress should come from. While Gove has recently come out to state developers must bear the responsibility and cost of repairs, we are yet to see legislative or fiscal change to support these statements.
For now, housebuilders have been boxed into a corner, and we now wait to see whether they come out fighting or throw in the towel.
David Hollingworth, associate director, communications at L&C Mortgages
There have certainly been some challenging issues in the housing market in recent years.
Cladding is a particularly important and difficult issue and it’s good to see the development of solutions for those leaseholders that have found themselves stuck in their homes through no fault of their own.
Nonetheless, developers will point to the fact that they complied with the prevailing regulations at the time, and this was always going to be a difficult problem to solve. Rapidly escalating ground rent will also have left a bad taste for some of those affected and whose homes were rendered almost impossible to sell.
However, we shouldn’t forget the huge number of success stories for those that have been able to buy their first or move to a new, bigger home. If we want to improve the supply of new homes to the market the new-build sector will clearly be critical to that goal.
If we want to see more property with better energy efficiency to improve the carbon footprint of our properties, developers will rightly point to the benefits of a new home over older, draughtier property.
Inevitably, developers will want to address some of the issues that have detracted from the huge successes that they have had, especially in keeping builds going during a challenging period. The fact that developers have hardly been able to keep up with the demand from buyers suggests that there is still a great deal of trust in the end product and that there’s a real appetite for new properties.
Developers will therefore continue to play a critical role in the market, and I fully expect that buyers will remain happy to buy into the benefits that they bring to the market.
John Doughty, financial services director at Just Mortgages new-build division
We deal with new-build house buyers every day and the vast majority are over the moon when they secure their home and move into it.
When new developments are built, things like snagging are part and parcel of housing construction while the building naturally settles into its skin. For this reason, developers will work with home buyers to remedy any faults that appear.
It should be noted that with a secondhand property this does not happen. If there are problems, you cannot go back to the previous owner and ask them to sort it out.
All new-build properties are backed up with a 10-year warranty such as the National House Building Council (NHBC) scheme. So even if problems are found 10 years after the purchase of the property, the warranty will pay for any repairs needed.
In addition, the government is in the process of setting up a New Homes Ombudsman scheme, which developers will be required to join. This will give new-build home buyers somewhere to go if they have any issues with their property, whether that is about the quality of the work or the developer’s conduct.
There are many advantages to new-build property which people are willing to pay for.
For example, new-builds are far more energy efficient with most having an EPC rating of B. This means people can take advantage of a green mortgage and get a better interest rate and their utility bills will be lower.
Houses and flats are expensive, no matter whether you buy a new-build or an existing property. New-builds are in high demand and that keen appetite is reflected in the price.
Gove outlines government cladding action and puts developers on notice
In a speech in the House of Commons yesterday, Gove (pictured) said: “I am putting them [developers] on notice. To those who mis-sold dangerous products, such as cladding or insulation, to those who cut corners to save cash as they developed or refurbished people’s homes, and to those who sought to profiteer from the consequences of the Grenfell tragedy: we are coming for you.”
He said he had established a dedicated team in the department to “expose and pursue those responsible” and it would review government schemes and programmes to ensure there are “commercial consequences for any company that is responsible for this crisis and refusing to help to fix it”.
It comes after Gove gave developers a March deadline for cladding remediation plans and said that if the industry failed to take responsibility then the government would “impose a solution into law”.
He added: “We must also restore common sense to the assessment of building safety overall. The government are clear—we must find ways for there to be fewer unnecessary surveys. Medium-rise buildings are safe, unless there is clear evidence to the contrary.
“There must be far greater use of sensible mitigations, such as sprinklers and fire alarms, in place of unnecessary and costly remediation work.”
Gove confirmed the withdrawal of the government’s consolidated advice note, which provided guidance on how to assess a building’s external walls, smoke control systems and identified the types of short-term interim measures.
He said it had been “wrongly interpreted and has driven a cautious approach to building safety in buildings that are safe that goes beyond what we consider necessary”.
He also said there would be “new and proportionate guidance for assessors”, developed in conjunction with British Standards Institution, which would be brought out this week.
Gove continued that the government would press ahead with the Building Safety Fund and adapt it, so it was “consistent with our proportionate approach”.
He added before Easter he would implement the scheme to indemnify building assessors doing external wall assessments, which would give them confidence to exercise their “balanced professional judgement”.
Gove will also work with lenders over the coming months to “improve market confidence” and Lord Greenhalgh will also work with insurers on new approaches to lower premiums for leaseholders.
Gove added that he would take the power to review the governance of Royal Institution of Chartered Surveyors to ensure it was equipped to support a solution to the cladding crisis.
He said the government would do its utmost to “relieve the burden that has been unfairly placed on leaseholders”, and he would scrap the proposal for loans and long-term debt for medium-rise leaseholders.
Gove said: “Leaseholders are shouldering a desperately unfair burden. They are blameless, and it is morally wrong that they should be the ones asked to pay the price. I am clear about who should pay the price for remedying failures. It should be the industries that profited, as they caused the problem, and those who have continued to profit, as they make it worse.”
He confirmed that no leaseholder living in a building over 11 metres will face costs for fixing dangerous cladding, and it would work with members of both houses to “purse statutory protection for leaseholders and nothing will be off the table”.
One of these actions includes amending the Building Safety Bill to extend the rights of leaseholder to challenge those who causes defects in premises to 30 years.
It would also provide an additional £27m to fund more fire alarms, and change grant guidance so shared owners can more easily sub-let their properties. He also added that he would encourage lenders and landlords to approve sub-letting arrangements.
The government will also put the recommendations of the Hackitt review on building safety into law and would commence on the Fire Safety Act.
Gove gives developers March deadline for cladding remediation plans
In a letter, the Secretary of State for Levelling Up, Housing and Communities Michael Gove (pictured) said developers should agree to make financial contributions to a fund to cover all outstanding costs for cladding remediation on buildings between 11 and 18 metres high, which is estimated to cost around £4bn.
He urged companies to agree to fund and undertake “all necessary remediation” on buildings over 11 metres they helped develop, and to provide “comprehensive information” on all buildings above 11 metres with historic safety defects they had a role in building.
Gove warned that if developers fail to produce such plans, then the government could restrict access to funding and future procurements, limit use of planning powers and pursue companies through the courts.
Gove added that if the industry fails to take responsibility, then the government will “impose a solution in law”.
The housing secretary is expected to make a speech in the House of Commons today to confirm plans to protect leaseholders, who are stuck in unsellable homes and face rising bills due to cladding, along with other measures around building safety.
He said: “It is neither fair nor decent that innocent leaseholders, many of whom have worked hard and made sacrifices to get a foot on the housing ladder, should be landed with bills they cannot afford to fix or problems they did not cause.
He added that the government had accepted its share of responsibility and “made significant financial provision” though its ACM remediation programme and Building Safety Fund,
Gove said some developers had “already done the right thing” and funded remedial works but “too many others have failed to live up to their responsibilities”.
The letter said that most buildings between 11 and 18 metres are safe, and some with combustible cladding are or could be made safe through existing or new safety fire measures.
Gove said that developers must “take forward all necessary remediation work at pace” prioritising with the greatest risk and “funding the quickest and most proportionate solution” to make buildings safe.
He said the industry should “enter an open and transparent” dialogue” with the government on potential proposals, kicking off with a roundtable of key residential developers and trade bodies.
Leaseholders and those impacted by the Grenfell Tower tragedy will also be at the roundtable to ensure transparency.
A full announcement on which companies are in scope for funding contributions from the government will be made in due course, but it is expected to cover firms whose annual profits from housebuilding are or exceed £10m.
Taylor Wimpey to remove doubling ground rent clauses after CMA action
Taylor Wimpey leaseholders will see their ground rents remain at the original amount, specifically when the property was first sold, and payments will not increase over time.
The developer confirmed to the CMA that it would stop selling leasehold properties with doubling ground rent clauses.
Taylor Wimpey will also remove terms which initially had the ground rent doubling but were converted to ground rent being increased in line with the retail prices index.
The CMA said that the doubling clauses were “unfair terms” and should be “fully removed” and “not replaced with another term that increases the ground rent”.
The impact of the increases is that people can often struggle to sell or obtain a mortgage on their home, and their property rights can also be at risk if they are unable to keep up with payments.
The CMA launched enforcement action in September last year on Countryside, Taylor Wimpey, Barratt Developments and Persimmon Homes concerning doubling ground rent clauses.
The action against Countrywide and Taylor Wimpey was regarding “possibly unfair contract terms”, whilst the action against Barratt Developments and Persimmon Homes was over the “possible mis-selling of leasehold homes”.
The regulator has secured commitments to change from Countryside and Persimmon, as well as freehold investor Aviva.
The investigation into Barratts Developments is still ongoing, according to the CMA.
It is also investigating investment groups Brigante Properties, Abacus Land and Adriatic Land about doubling ground rent terms in their contracts.
Andrea Coscelli, chief executive of the CMA, said: “This is a huge step forward for leaseholders with Taylor Wimpey, who will no longer be subject to doubling ground rents. These are totally unwarranted obligations that lead to people being trapped in their homes, struggling to sell or obtain a mortgage. I hope the news they will no longer be bound into these terms will bring them some cheer as we head into Christmas.
“Other developers and freehold investors should now do the right thing for homeowners and remove these problematic clauses from their contracts. If they refuse, we stand ready to step in and take further action – through the courts if necessary.”
She added that this kind of issue could be “resolved at pace” and met with fines if the CMA receives consumer powers which are currently being consulted on by the government.
Secretary of State for Levelling Up, Housing and Communities Michael Gove said: “Unfair practices, such as doubling ground rents, have no place in our housing market – which is why we asked the CMA to investigate and I welcome their success in holding these major industry players to account.
“This settlement will help to free thousands more leaseholders from unreasonable ground rent increases and other developers with similar arrangements in place should beware, we are coming after you.”
He added that it would continue its work to protect and support all leaseholders and legislation to restrict ground rents in new leases to zero would stop unfair charges for future homeowners.
Taylor Wimpey was contacted for comment.
Gove might consider ‘further action’ to support first-time buyer lending – Bamford
His recent appearance before the Housing, Communities and Local Government Select Committee was noteworthy for any number of reasons with Mr Gove using the meeting to outline his views – and no doubt direction of travel – on a large number of issues, not least cladding, leaseholds, planning, housing supply, and mortgages.
Given he has been a part of a government which has clearly sought to provide support to first-time buyers in order to help them onto the ladder, it appears there may be some doubt in his mind about whether government action has been met in kind by lenders.
He called lenders “overcautious” in their lending policies to first-timers since the 2008 financial crash, suggesting the housing gap couldn’t simply be bridged by the building of new homes, with the assumption being here that lenders have effectively put the brakes on the ability of new owner-occupiers to get on the ladder.
Many within our sector will have some sympathy with that argument, not least because we have clear evidence to suggest that without the government’s most recent intervention – the guarantee to stimulate higher LTV mortgages – we may well be still looking at very slim product pickings for borrowers wanting 95 per cent LTV mortgages in particular.
I think there would be little pushback on the suggestion that lenders have been reluctant to fish in these high LTV waters without government support, although it is now somewhat ironic that, with that support available, many lenders are choosing not to use the government scheme and are instead using private alternatives or indeed not mitigating the risk at all.
Lenders themselves might argue they are curtailed by regulation in terms of their lending levels at higher loan-to-income (LTI) multiples, which tend to be more greatly required by first-timers or those seeking high LTV mortgages. Since October 2014 no more than 15 per cent of a lender’s mortgages can be high LTI, which is defined by the Financial Policy Committee (FPC) as being 4.5 times income or higher.
Gove might consider “further action” to improve first-time buyer lending
However, there are a couple of points to make here – just how close to 15 per cent have lenders got, and why post-March this year have they been so willing to offer higher LTV mortgages when prior to this, they seemed immune to calls to return these products to their ranges? Especially when many are not using the government guarantee designed to incentivise such product offerings?
At the moment first-time buyers wanting high LTV mortgages are catered for relatively well, although it is telling that 95 per cent LTV product numbers are still nowhere near where they were before the pandemic began.
In a very strong sense, Mr Gove is right to highlight this issue because the government’s own guarantee scheme is only due to last just over another year. If it is not renewed, will its passing result in a fall back of 95 per cent LTV options again, even from those who have not used it? If so, that will not be good for a government seemingly still focused on helping more young people into their first homes.
There’s no doubt lenders are still cautious, and it might also be possible that they are shielding behind the FPC rules in order to justify that caution. There has been talk of movement on that LTI measure for some time, which would be welcome – we are not in 2014 any more and, if we are serious about continuing to support first-timers, then lenders may well need to feel they won’t be sanctioned for increasing their lending appetite in this space.
Mr Gove may therefore feel it’s time for further action in a number of areas to improve lending to those new to the housing market.