FIGURES IN a report from consultants Capital Economics found that around 1.27m flats in England ‘could be unmortgageable’ due to combustible cladding concerns.
Mortgage Solutions reported on the Capital Economics study, which found that around 1.27m flats in England ‘may be ineligible for a mortgage due to concerns around unsafe cladding’, with the firm adding that ‘if it was to be assumed’ that the government’s November statement in relation to the external wall review (EWS1) not applying to certain buildings ‘made no difference to the behaviour of lenders’, complications ‘could affect’ all buildings taller than 11m or three storeys.
While that statement said that buildings below 11m or three storeys ‘would not require’ an EWS1 form to gain mortgage finance, Housing Minister Christopher Pincher said that lenders ‘had the right to demand one from leaseholders of shorter buildings’ because it was ‘not a government or regulatory requirement not to do so’.
Capital Economics concluded therefore that if the EWS1 form had been in place in 2019, 40% of 137,000 flats sold ‘would have faced difficulties completing’ due to being either three storeys or 11m tall. Should leaseholders have failed to obtain EWS1s in that situation, the company predicted that the overall number of property transactions for 2019 would have dropped by 7%.
In turn, if those sellers were ‘assumed to have otherwise gone on’ to buy a new home, these ‘obstacles would have resulted in a steeper decline’ of 14% in property transactions for the year, and it was ‘unclear’ whether the EWS1 form had ‘impacted sales’ in 2020 because of the ‘overall effect of the pandemic on the housing market and a recent demand for larger properties’.
Despite this, transaction data obtained from Her Majesty’s Revenue and Customs for the 12 months to June 2020 showed that 17% of residential sales consisted of flats compared to 20% in 2017, before the Grenfell Tower fire ‘highlighted the dangers of cladding’. Capital Economics noted: ‘Affected flats may directly see delays in transactions, and disrupted property chains could delay other sales. But putting a hard number on the potential effect is difficult.
‘For one, what happens will depend on policy – if the government or lenders were to relax the rules, then any disruption could quickly disappear. Furthermore, a lack of reliable information on the duration and extent of testing delays makes it hard to know how many homes are really being affected. As a result, our base case is that a policy fix will come sooner rather than later.
‘After all, while the cost of inaction now may be reasonably low, with as many as 4.5 per cent of private properties affected by delays, lenders’ incentive to fix any problems will rise sharply once wider housing demand starts to weaken this year.’
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