Homeowners living in flats are finding it near impossible to remortgage where they cannot provide evidence of an external wall survey which confirms the building is free of combustible materials.
In the wake of the Grenfell disaster surveyors acting for mortgage lenders are making extra checks to ensure a building’s construction is safe.
Many are asking for evidence of an external wall survey, which comes in the form of an ESW1 certificate.
The EWS1 certificate was introduced last December to give mortgage providers reassurance so they would lend on apartments built before changes to the building regulations in 2018. It was developed by lenders with the Royal Institution of Chartered Surveyors (RICS) to make the valuation process easier.
In the first instance, it was designed for flats in high-rise blocks, typically at least six storeys. But in January, ministers said fire safety should be considered on all blocks, irrespective of height.
However, borrowers are increasingly finding that their building does not have one.
The guidance from RICS applies to buildings of all heights that are multi-residential buildings, so even houses converted to two flats could fall under the rules.
Flat owners ‘trapped’ on high rates
The situation has created a new wave of mortgage prisoners for people who are living in flats who are stuck with their existing lender.
If they won’t agree a new mortgage deal with their existing lender, they will revert onto the standard variable rate (SVR) which will see their monthly repayments rocket to potentially unaffordable levels.
The average standard variable rate is around 4.7% – far greater than the best deals available today at less than 2% for a two-year fix.
To give context to the problem, we have recently been trying to assist a client whose Sainsbury’s Bank fixed-rate mortgage product was coming to an end on 30 September 2020.
She approached us in good time to start the process of exploring remortgage options and to compare what she has been offered by her current lender against what was available in the market.
Having gone through the initial ‘Know Your Customer’ requirements – which ensures the lender knowns the identity of an applicant along with the source of funds – we chose to place her mortgage with Coventry Building Society, which had a more competitive offering.
However, upon submission of the application, we received notification to say an EWS1 on the building would be required in order for the case to progress.
Our client approached the management company to request this and despite the investigatory work being started on the building which confirmed there was no ACM or HPL cladding – which are the types of cladding found to be dangerous in tests following the Grenfell tragedy – the management company was unable to provide timescales on when the report would be issued.
Our client now sits on the SVR and is at the mercy of others despite her building not being over 18 metres tall.
There are likely to many borrowers who are in the same position as some of our clients that are unable to take advantage of competitive mortgage rates offered by rival lender because of the prerequisite need to have an EWS1.
Delayed applications
The problems, however, go beyond those homeowners who cannot get access to the correct paperwork. There have been instances where even though the mortgage client has received their EWS1 certificate, it came with remedial work being required and so lenders are not willing to lend – or remortgage – until that work has been completed.
The wait for the work to be done could be years depending on the size of the building.
In our view UK Finance, the professional body which represents many mortgage lenders, must apply pressure on banks to ensure they allow a degree of flexibility when it comes to assessing applications which require the EWS1 forms.
The situation hasn’t been helped by the fact that, due to lockdown and huge backlogs with the fire risk assessors, obtaining these reports isn’t a quick process.
RICS also has a crucial role to play by giving guidance allowing mortgage valuers to be able to provide a broad opinion to the lender on their suitability.
The valuers are concerned about protecting themselves from being held accountable in the event they sign off lending then the building goes into flames. The government needs to look at giving moratorium period otherwise mortgagees stand to be the ones bearing the brunt.
While homeowners are having to pay over the odds for their mortgage, the problem also means they are unable to sell their home, because any new owner would not be able to secure a mortgage.
The impact is significant for the wider housing market as those unable to sell their flats are blocking what needs to be a fluid market.
How widespread is the problem?
Some 457 high-rise buildings over 18 metres have been identified in England as having Aluminium Composite Material (ACM), which is the same type of cladding that was mounted onto Grenfell Tower. Official figures from the Ministry of Housing, Communities and Local Government (MHCLG) published in June 2020 state 300 of those buildings are still waiting to be made safe.
Some £1.6 billion has been pledged by the MHCLG to speed up the replacement of the unsafe cladding. However, the funds only cover buildings more than 18 meres tall.
Yet many other blocks are still covered in potentially unsafe materials – many with no sign of important remedial works taking place.
The Housing, Communities and Local Government Committee, an influential group of MPs, has called on the government to intervene, but warned that repairing the 2,000 properties that have combustible cladding could cost £15bn. Whilst the wrangling continues mortgagees are bearing the cost.
Regardless of height, safety tests must be carried out by a qualified engineer who assesses the walls and then declares the building safe – or otherwise. There have been concerns that part of the delay in getting the paperwork is due to a shortage of engineers.
According to the Institution of Fire Engineers there are only around 290 qualified experts able to carry out investigations of external wall systems (including cladding, insulation and fire-stopping). This could lead to waiting times of months and even years for some.
How to get help if you are remortgaging
As a business that works closely with lenders, surveyors and developers, we are seeing many clients faced with concerns relating to these issues and so we would always recommend that you seek advice from an experienced mortgage broker either as an existing homeowner or if you are seeking to buy a property that may be affected.
Hiten Ganatra is managing director Visionary Finance
