Owners of flats in high-rise buildings that have unsafe cladding may be able to more easily sell or remortgage their homes, thanks to a shift in lending policy at six major banks.
Barclays, HSBC, Lloyds Banking Group, Nationwide, NatWest and Santander have each committed to consider mortgage applications on flats in buildings with cladding that are more than 11 metres (five storeys) in height.
The banks have eased their rules following updated guidance from the Royal Institution of Chartered Surveyors on how to value such properties in England.
The news has been hailed a 'step forward' by campaigners, yet there remains apprehension as to how great an impact it will have on the market.
Here, Which? explores what the changes mean for homeowners who have been stuck in flats with cladding, and for prospective buyers who have long been unable to secure a loan.
Will flat owners be able to sell or remortgage?
Residents in flats with cladding have been stuck in limbo since the Grenfell Tower fire in 2017. The disaster, in which 72 people died, resulted in heightened scrutiny of safety standards for tower blocks in England, and lenders battened down the hatches in regard to offering mortgage loans.
With mortgages off the table and the value of their properties falling off a cliff, wantaway flat owners have either had to stay put or sell to cash buyers at drastically reduced prices.
Therefore, this week's agreement from banks to restart lending is positive news. It could prove to be the key for thousands of previously unmortgageable flats to return to the market and for existing homeowners to get a better mortgage deal.
However, it's not as simple as allowing any property with cladding to be considered for a mortgage. There are caveats...
Repair work must be pre-agreed
Flatowners will have to prove that dangerous cladding materials will be removed in the future – whether by developers, a government-funded scheme (such as the Building Safety Fund) or under leaseholder protections in the Building Safety Act.
Banks will only consider mortgage applications on properties where it is confirmed that cladding remediation work will take place. This means properties without scheduled work won't be eligible.
An EWS1 certificate may or may not be needed
An External Wall Safety (EWS1) certificate – introduced after the Grenfell fire – grants a certain rating (A1, A2, A3, B1 or B2) to high-rise properties that have undergone an External Wall Fire Review.
A B2 rating is the lowest grade you can get and shows that the external wall contains combustible materials and remedial work is required to make it safe.
An A3 rating can mean the external wall does not contain combustible materials, but work may be required to fix attachments such as combustible balconies.
Some of the banks will be scrapping the need for EWS1 certificates – making it easier for owners to sell or remortgage. But other lenders aren't and will still require the forms. Find out more below.
Removing the EWS1 hurdle could prove significant, as acquiring one and getting a good rating has been a key stumbling block for leaseholders trying to sell.
- Find out more: your rights if you live in a usafe building
New bank lending criteria for flats with cladding
While the group of six lenders have each committed to offering mortgages on affected properties, there are varying eligibility thresholds that homeowners have to meet.
Below, we outline what each bank requires before a mortgage can be offered on high-rise flats with cladding.
- Barclays: now lends on cladded high-rise properties where a recognised remediation scheme is in place.
- HSBC: properties that have failed their EWS1 assessment - but have funding in place to fix it - will now be considered for lending. In some cases, an EWS1 may still be required.
- Lloyds Banking Group: EWS1 form is no longer required. It updated its position on 19 December 2022. Applications for properties in England that are in buildings five storeys or higher should proceed without issue.
- Nationwide: will lend on affected properties if covered by government or developer remediation schemes. If a property has an EWS1 form with a rating of A3 or B2, it would 'need confirmation there is a clear path to the building being remediated, an outline of the cost of the works and who is paying for them'.
- NatWest: stresses it 'will support' more customers with a mortgage on a building with cladding. Flats with cladding systems rated A3 or B2 in their EWS1 will be supported, and leaseholders in eligible buildings will now 'need to complete a leaseholder Deed of Certificate to the building freeholder'.
- Santander: doesn't require EWS1 forms 'unless specifically requested'. It will lend on an affected property irrespective of the building's height if covered by future government or developer remediation schemes.
Find out more: how much can I borrow on a mortgage?
Mortgage offer returns 'will simplify process'
The banking lobby group UK Finance says the reintroduction of mortgage offers is 'significant' and will give leaseholders and prospective buyers 'more clarity on purchasing homes with building safety issues'.
Meanwhile, the minister for local government and building safety, Lee Rowley, says the change will help 'innocent leaseholders, who have been stuck for too long, to sell their homes'.
It is hoped residents trying to move will be able to secure better sale prices as a result of buyers being more likely to secure a mortgage.
- Find out more: how to sell your property
'The crisis is far from fully resolved'
There is optimism that this week's change could prove beneficial, however, campaigners say it is one piece in a never-ending jigsaw which is yet to be fully addressed.
Giles Grover, co-leader of End Our Cladding Scandal, said: 'This announcement could and should be a step forward for some of the innocent leaseholders caught up in the building safety crisis; however, as has been the case for some time with such positive-sounding announcements, we need to see whether reality on the ground lives up to the hopeful noises.'
He fears there will still be uncertainty around a number of issues – including the impact on property values and the cost of building insurance.
'There is still no comprehensive solution in place to fully resolve this crisis for all buildings of all heights,' Mr Grover added. 'The return of true confidence in the flat sales market is still some way away.'
- Find out more: five costs the cladding scandal has piled on homeowners
How the government is trying to solve the building safety scandal
Hundreds of thousands of flats are caught up in the knot that is the cladding scandal, with high-rise tower blocks and multi-storey, multi-occupancy residential buildings of any height requiring fire safety scrutiny.
Inspections have revealed endemic failings, with extensive remediation work required to make them safe. Flat owners across the country have struggled with the mental health fallout of becoming a mortgage prisoner and living in potentially unsafe buildings, and many have paid huge sums for interim safety measures.
The government has since committed to ensuring leaseholders shouldn't pay for the cost of the works, with those responsible for the defects footing the bills instead.
A series of extra measures – including bans for developers that refuse to pay for repairs and a £3bn tax to fund cladding overhauls – were introduced by the government as part of the Building Safety Act last summer.
Courts have also been given new powers to stop 'shadowy shell companies' being used by developers.
- Find out more: our coverage of the cladding scandal
source https://www.which.co.uk/news/article/why-it-could-be-easier-to-get-a-mortgage-on-a-flat-with-cladding-issues-absr64A2NKKH