Property owners unable to sell or remortgage a property due to issues with cladding standards may be relieved to hear of recent changes to guidance and lender positions that make mortgage financing on apartments in clad buildings more accessible.
Six of the largest UK mortgage lenders have confirmed a policy change that may make some previously unmortgageable properties eligible for finance, including Barclays, Santander, NatWest, Lloyds, HSBC and Nationwide.
Caveats remain, such as providing evidence that any hazardous materials will be removed or that properties potentially exposed to cladding issues will be protected from liability claims.
The Issue With Financing UK Buildings With Certain Types of Cladding
The Grenfell Tower tragedy in 2017 was a catalyst for change in the property building and financing industries after 72 people lost their lives in a severe fire, which was exacerbated by the materials the apartment block was clad with.
Many property owners, particularly those with apartments or flats in taller blocks built in the 1960s and 70s, have since been eliminated from mortgage eligibility, meaning they cannot move, sell a property or refinance – regardless of their circumstances, finances, or equity ownership.
While government initiatives to mandate the removal of high-risk materials are a welcome starting point to protect residents of apartment blocks that may have been clad with similarly hazardous materials, there have been ramifications for thousands of homeowners and prospective buyers.
One of the important measures is contained within the Building Safety Act. It states that the owners of flats with leaseholds, but not freeholds, with properties over 11 metres high are not personally liable for repairing or replacing cladding now categorised as unsafe.
The outcome is that owners of flats or apartments may now be in a far better position to sell or refinance where existing mortgage agreements have come to an end, albeit with limited providers.
Why Have Mortgage Guidelines for Buildings With Possibly Unsafe Cladding Changed?
Initial measures were designed to protect human life and prevent developers and freehold owners from dodging responsibilities to correct high-risk cladding that carried a significant risk to residents, attempting to avoid the huge losses and tragedy that occurred during the Grenfell Tower disaster from impacting further homeowners and tenants.
On 9th January, the Royal Institution of Chartered Surveyors (RICS) published new guidance following extensive review, which provided recommendations for UK property lenders to restore their ability to lend against such properties without imposing unacceptable liabilities on either lender or borrower.
The guidance stated that lenders would be permitted to consider applicants for mortgage financing, irrespective of cladding materials, provided there was evidence that the developer or government scheme would bear responsibility for cladding issues or that these would be covered by leaseholder protections.
Until now, a home subject to EWS1 evaluations (External Wall System Fire Review certificates) may have been considered ineligible for financing – many more have been excluded from mortgage policies due to a shortage of engineers to conduct these assessments.
Newly updated guidance has assured lenders they can resume lending against apartments in buildings with cladding without any undue risk.
Proving Eligibility for Mortgage Financing Against a Vlad Building
While this is all positive news, it is far from without caveats, and many homeowners may still find themselves stuck in limbo without selling or remortgaging solutions. Homeowners can potentially secure a remortgage offer or apply for a mortgage to purchase a property, provided they have proof that either:
- The developer will replace or repair cladding – classed as self-remediation.
- The property is protected by government initiatives such as the Building Safety Fund or the Medium Rise Scheme.
- The home is owned as a leasehold, is covered by the Building Safety Act and qualifies for government protections outlined through the online search tool.
Sellers and prospective buyers may still be asked to provide an EWS1 form, which acts as a safety certification required by many mortgage providers.
However, the criteria and assessment process vary between lenders. Whereas one may be happily prepared to offer financing to support a property purchase or enable a potential buyer to proceed, others will apply much stricter criteria.
Applying for a Mortgage or Remortgage Against an Apartment in a Building With Cladding Concerns
The good news is that the six lenders who have relaxed their lending policies cover a huge breath of the mortgage lending market – about 60% collectively – which means the majority of buyers and sellers should now be in a much better position to proceed with their property transaction plans than they may have been since 2017.
Mortgage applicants also should not expect to pay higher interest rates or punitive fees because a property subject to financing has possible cladding issues. The ‘big six’ who have updated their policies have clarified that standard interest rates will apply.
However, professional advice is highly advisable to compare the mortgage products on offer, ensure you have the evidence necessary to secure the financing you need and protect your future interests as a seller, homeowner or property buyer.
For further information about cladding risks and the links to mortgage financing, please contact the Think Plutus team at any time for independent, jargon-free and personalised advice.