There has understandably been an increased emphasis on fire safety in high rise buildings following the tragic events at Grenfell Tower in 2017. This has consequences for leaseholders and landlords, particularly when applying for mortgage funding.
Hundreds of apartments bought last year for vast sums are now being given £0 valuations. Mortgage providers followed, with many unwilling to lend on these properties due to cladding concerns.
This briefing note outlines the complex picture around current legislation and advice and explains the measures that Mainstay are taking.
Advice for Existing High-Rise Buildings
MHCLG also published advice relating to wall covering systems that do not incorporate ACM. These cover such commonly used materials as wood and High-Pressure Laminate (HPL) installations. The recent advice note for Building Owners of Multi-storey, Multi-occupied Residential Buildings issued by MHCLG instructs building owners to check cladding systems and undertake works to make them safe where necessary.
In some instances, developers have been able to check original construction records in order to assess whether systems meet MHCLG advice, however, to date the likely scenario is that original records are either insufficient or irretrievable so a satisfactory conclusion cannot be reached.
In these circumstances, MHCLG advice recommends that further investigation is carried out.
Mortgage Lenders and 'Statement of Compliance'
Some mortgage lenders are not accepting the findings from survey reports but are requiring that the ‘Statement of Compliance’ be produced by a member of the professional bodies listed in MHCLG guidance
In most cases there is insufficient technical data available to assess whether a building meets the higher standards. Hence, the only way to assess combustibility is to commission an intrusive survey.
Even in cases where documentation has been provided on handover of the building (i.e. M&E files, ‘as built’ drawings) MHCLG emphasises the importance of ensuring that cladding systems were installed correctly and in line with manufacturer’s specifications. Therefore, it is likely to be necessary to employ an expert and to carry out intrusive testing.
In any case, any expert is likely to require that physical checks are carried out before issuing a written Statement of Compliance.
After months of discussions, the Royal Institute of Chartered Surveyors (RICS) has created the ‘External Wall System 1’ form (EWS1) with a view to moving away from the binary approach MHCLG advice.
Hailed as a way of ‘unclogging the property market’ the more nuanced EWS process allows a ‘competent professional with fire expertise’ to check materials and give assurances to lenders that it is safe or in need of remediation.
The expert must first assess whether materials of limited combustibility are present. If they are present, it is given a clean bill of health for mortgage companies. If the materials are found to be combustible, but a survey deems the risk to be low, it is also given the green light for lenders. The guarantee lasts for five years.
If an external wall is found to have combustible materials, then a chartered fire engineer must be appointed to carry out a more in-depth assessment. If they deem the risk to be low, then lenders are given assurances. If deemed high risk, remediation work is then needed.
Some Fire Engineers and other professionals we have engaged with are not prepared to write a statement of compliance, due to:
- The liability attracted in writing such a statement was disproportionate and means that all risk is passed to the professional.
- The professional indemnity insurance for professionals will not allow them to make such statements.
Also, invasive tests are normally conducted but this does not necessarily mean that the statement of compliance can be provided. In many cases, further intrusive checks may be required (involving appointing tradespeople to gain access and inspect cladding).
In addition to the issues highlighted above, there are a limited number of experts available or willing to carry out these checks. The government’s consolidated guidance, which was issued on 20th January 2020 calls for checks on all buildings regardless of height. Unfortunately, this is going to have an impact on an already resource-thin pool of experts.
Mainstay are in the process of seeking instruction from clients and landlords for all of the high-rise buildings we manage and are engaging with professionals to undertake cladding surveys.
This is an industry wide challenge for all high-rise residential buildings across the UK and as such, there is no quick fix solution, although we believe Government should provide support, including financial assistance and clearer advice, to ensure residents are not exposed to costs associated with remediation.
Current demand for the services of suitably qualified experts is extremely high causing a significant backlog. Regrettably, this means in some instances, owners may struggle to re-mortgage or sell their properties until this report is available. Whilst we are working hard to resolve this situation, we recommend that residents who find themselves in this situation contact their mortgage lender or their buyer’s lender to seek advice on how best to proceed. For those completing the EWS process, there is still no guarantee that banks will lend, although different lenders have different requirements and not all mortgage providers will require a statement of compliance.
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