How Has Unsafe Property Cladding Made Thousands of People Mortgage Prisoners?

Since the Grenfell Tower disaster in 2017, fire safety reviews have led to a number of legislative changes here in the UK. One outcome from these changes is that surveyors and mortgage lenders have altered how they review high-rise residential properties against lending criteria and, subsequently, many no longer hit the requirements.

An upward shot of a tall building surrounded by scaffolding

The Problem with Cladding

Following the December 2018 ‘advice note 14’ from the UK government, clear guidance was set up for building owners and lending criteria became stricter overnight.

Now, three years on since the worst residential fire in the UK since World War II, there are an estimated 3 million properties that have not had their outer shells updated or are waiting on necessary paperwork to verify new cladding is safe.

This has caused numerous financial issues as a result, with thousands of leaseholders becoming ‘mortgage prisoners’.

Buyers are having mortgages rejected because the building (or their flat within the building) has not been signed off as safe, and owners cannot remortgage at the end of their fixed rate contracts, resulting in varying (and often high) interest rates.

Furthermore, a number of large construction projects now have delayed sign-off and new properties cannot be sold until the cladding has been updated.

For cash-rich investors this lack of competition could be seen as a positive. However, properties are higher risk as purchasing may come with the burden of cladding replacement costs or lower tenant demand due to the below-par fire safety standards.

How Will the EWS1 Forms Help?

The government has started to recognise that many leaseholders are now trapped in properties which do not suit their needs, so it has brought in a new industry-wide form to help improve the building assessment process.

A completed External Wall Fire Review form, endorsed by the Royal Institution of Chartered Surveyors, UK Finance and the Building Societies Association, will help make buying or remortgaging smoother and potentially avoid delays with finance providers.

The freeholder is ultimately responsible for the building’s safety and the EWS1, but that doesn’t necessarily mean they are responsible for the associated costs. However, depending on the lease agreement in place, many flat owners or tenants may find themselves on the hook for cladding replacement costs and organising the necessary forms – a price that many can’t afford.

““The EWS1 process is designed to support valuations for high rises where cladding may be a concern — this is because of the increased risk fire can present at height. “While not all lenders require an EWS1 form, building owners should be as forthcoming as possible about the construction of their building and the fire safety measures in place.””

said a government spokesman

What Affect Have We Seen on Borrowing?

As specialist finance brokers, we’re used to dealing with out-of-the-norm lending situations and, although we have had few cases of our own affected by cladding issues, we are aware of a number of lenders who have published criteria stating their acceptance of EWS1s. However, the majority of lenders are less committal and will instead refer to manual underwriting and take a view on lending on a case-by-case basis.

It is also important to note that cladding isn’t the only complication when it comes to high-rise flats. Some lenders also have restrictions in their criteria that says they won’t offer finance on a space higher than a certain number of floors in a building. Always consider a property’s physical location!

If you have found yourself in need of property finance in out of the norm circumstances, get in touch with our experienced team today to see how we can help you secure the funds you need.

Article By Chris Evans

October 26th, 2020

Chris heads up the specialist mortgage team which encompasses first charge mortgages, buy-to-let finance and second charge loans.

Chris has spent the last 17 years gaining experience in mortgages, protection and secured loans with roles at Legal & General, Nemo and Mortgage advice bureau giving him a broad understanding of the property finance markets.

Having Joined the Pure Group in 2017 he has worked with Ben to establish and grow the 1st and 2nd charge proposition exponentially in a short period of time. Chris has overseen the recruitment and development of an extremely experienced team of employed and self employed advisers that continues to deliver year on year growth.

See more articles by Chris

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