THE HOUSING, Communities and Local Government Committee’s (HCLGC’s) recent report into high rise cladding branded the mortgage industry’s cladding form ‘slow and expensive’.
Last week, the HCLGC published its report Cladding: Progress of Remediation, in which it found that ‘fixing fire safety defects’ in high risk residential buildings could cost up to £15bn. With ‘some 2,000’ residential buildings still covered in combustible cladding and ‘thousands of homeowners sleeping in potential fire-traps every night’, it also warned that the £1bn cladding funding announced by the government ‘will cover just one-third of the highest-risk blocks’ in England.
It called on the government to pay the ‘exorbitant costs’ of temporary safety measures ‘currently being footed by blameless leaseholders’, and to take legal action ‘against building owners who have dragged their heels’. It added of the fund that ‘stringent rules on applying’, such as the short application window and ‘restrictions’ against social housing providers, risk ‘leaving many unable to access vital funding’.
The building safety fund should also ‘be increased to address all fire safety defects in every high-risk residential building’, and the HCLGC called on the government to ‘ensure all buildings of any height’ with aluminium composite material (ACM) cladding ‘be fully remediated of all fire safety defects by December 2021’, and that buildings with other defects ‘including non-ACM cladding’ be remediated by June 2022.
Finally, it calls for any residential building ‘where works have not commenced by December’ this year to be ‘subject to’ a compulsory purchase order (CPO), and for a new national body to be ‘created to step in’ when councils are ‘unable or unwilling’ to act. A ‘hard line’ should be taken against ‘slow-moving’ building owners, with CPOs allowing councils or the government to ‘take direct ownership of the freehold of buildings with serious fire safety defects’.
Now, Mortgage Solutions has reported on the report’s criticism of the external wall fire review (EWS1) process, which was designed to help banks ‘make lending decisions on high rise properties with a potential fire risk’, for being ‘slow and expensive’. The committee asked for the government to step in, stating that not only was the process ‘not working’ but that the government should ‘take control’ by putting a ‘faster and fairer’ system in place.
The report commented that the ‘industry-designed’ process was ‘put in place to allow mortgage providers to make informed lending decisions on high-rise residential properties potentially at risk of serious fire safety defects’, but added that ‘however, it is a slow and expensive process and we are concerned that it is being applied to an unnecessarily wide range of buildings’. It believes ministers should have ‘issued clearer guidance’ to mortgage lenders before advising on fire risk buildings.
It recommended in turn that the government ‘must urgently work with mortgage providers to give residents the right to remain on their existing mortgage deals and not be forced to move onto expensive standard variable rate (SVR) mortgages. Where residents have already been forced to move onto standard variable rate mortgages, lenders should immediately offer them the right to move to one of their cheaper products’.
The news site noted that the form, introduced last December, came from collaborations between mortgage and housing market trade bodies and industry experts, including UK Finance, the Building Societies Association and the Royal Institution of Chartered Surveyors (RICS). It was intended to help ‘create a standardised process that would make it easier for brokers and homeowners to find suitable mortgages’.
The form would allow a valuer to request it from a building owner or representative, and require a building professional to ‘confirm that the actual material on the walls posed a limited risk or was non-combustible’. Should it contain materials that ‘posed a significant fire risk’, a ‘detailed description of what was needed to fix it had to be issued’, but within a month brokers began reporting that lenders were rejecting mortgage applications.
This was because of ‘outstanding cladding inspections trapping borrowers with their current providers’, and so applications were being cancelled due to inspection requests – made to management and maintenance companies of high rises affected – being delayed. At the time, a Barclays spokesperson said this related to ‘those qualified to issue the EWS1 certificate, the number of buildings that need to be inspected and the time needed to complete this review’.
HCLGC said that there was a ‘lack of qualified, insured Chartered Fire Engineers to undertake the required surveys’, which meant a ‘large number of buildings would not be inspected for many years’. The EWS1 surveys have also been expensive, with costs ‘typically passed to residents through their service charges even where no fire safety defects were found’.
As a result of fire safety advice from the Ministry of Housing, Communities and Local Government (MHCLG), ‘a much larger number of buildings’ fell into the scope of the EWS1 process ‘than had been envisaged’, with the report adding that ‘it is clear that the process has lacked sufficient input from leaseholder representatives, but also other important stakeholders, including the insurance industry.
‘Reforms could include a relaxation of the rules on who is able to undertake these surveys, clarification of which buildings should fall within scope and more guidance to ensure the correct prioritisation of buildings. The government should provide necessary funding to ensure that all affected buildings are surveyed within the next 12 months, so residents are not forced to wait years before they are able to sell their properties or obtain new mortgages’.
In response to the report, RICS said it agreed with some of the issues raised, and urged the government ‘to take greater ownership of the situation’, whilst also noting that ‘at least’ 860 EWS forms ‘have already been completed’, meaning homeowners in at least 800 blocks ‘have been able to buy, sell and remortgage or plan remediation works’.
It added that it has ‘always called for a properly funded, centrally managed approach to the resolution of the issues which have come to light since the tragedy of Grenfell’, and stated that ‘EWS1 was created to find a solution to the problems caused in 18m+ tower blocks by MHCLG advice, which the report acknowledges. EWS has allowed homeowners to know whether safety critical works are needed and also obtain finance to buy, sell and remortgage.
‘Its development was cross industry which included lenders, valuers, insurance, legal representation, developers and a number of other interested parties and trade bodies’. It did however acknowledge that since launch, a ‘lack of fire experts with the knowledge and skills to assess wall systems had caused problems’, alongside the lack of professional indemnity support from insurers, and it also ‘laid some of the blame with the government’.
Specifically, it noted that MHCLG’s consolidated advice note in January 2020 ‘caused further significant confusion when it brought all buildings regardless of height into scope and added to the already known capacity issues with fire experts. RICS continues to call on government to take ownership and properly fund remediation works to all affected buildings. Only with a well thought out, government funded strategy, will leaseholders be able to live in safe buildings’.
It concluded by stating that industry and government collaboration ‘was important and had been on going’, but there was ‘need for further government funding for buildings of all heights […] RICS will continue to work on the EWS process, to ensure it is the best it can be, until such time as government creates an alternative way of assessing and remediating buildings with flammable cladding’.
A UK Finance spokesperson also stated: ‘As the select committee’s report acknowledges, the External Wall Fire Review process was designed to enable informed lending decisions on high-rise residential properties potentially at risk of serious fire safety defects. It has enabled lending on numerous flats but we will be considering the committee’s suggestions about how the mortgage process can be improved for residents.’