Grenfell Tower Enquiry: Implications for mortgage lenders

_{Re-cladding work in progress – Stratford, London}

Peter Glover offers a surveyor’s view of the recent Grenfell enquiry and what it means for mortgage lenders

With the news headlines dominated by Covid, lockdowns, Donald Trump and Brexit the general public may be forgiven for failing to appreciate that details of a major regulatory and corporate scandal have been unfolding at the Grenfell Tower Enquiry.

Owners and tenants in flats with unsafe cladding will have been aware of the issues for some time if they are living in blocks which require on-site fire wardens and many leaseholders are currently unable to sell, being trapped in flats which are currently unsaleable and unmortgageable either because the building has unsafe cladding or because the safety or otherwise of the cladding has yet to be determined.

There are three aspects of this desperately sad situation which are relevant to mortgage lenders. First, mortgage lenders may find their borrowers are no longer able to pay their mortgages because they are faced with huge service charges for replacing unsafe cladding and paying fire wardens in addition to the other pressures following from lockdowns and Covid.

Secondly, in those cases where mortgage lenders take possession of the flats they may be unable to sell them or only able to sell at a much reduced price to a cash buyer.

Thirdly, there is the potential, but unjustified, reputational damage to mortgage lenders who may be accused of permitting – or even encouraging – borrowers to invest in unsafe flats.

When the Grenfell Enquiry report is published there is likely to be an outpouring of anger, blaming and buck-passing followed by years of litigation as cladding suppliers, developers, builders, architects and insurance companies deal with the after-shock. There may also be criminal prosecutions.

Construction materials

The inquiry has been hearing evidence regarding the testing and marketing of the combustible materials which were attached to the exterior of the Grenfell Tower.

Essentially these were the actual cladding material comprising thin aluminium sheets bonded to a core of polyethylene and the two forms of combustible foam insulation fitted behind it.

The cladding was manufactured by Arconic, a USA based company and the foam insulation panels were provided by Celotex, a French multinational, and Kingspan an Irish company.

Surveyors preparing reports and valuations will be very familiar with Celotex and Kingspan as both products are widely used in the construction industry.

Insulation is important and a vital component in our battle to retro-fit existing buildings and provide warm new homes if government targets to combat climate change are to be met.

So there is nothing wrong in principle with the idea of cladding existing buildings on the outside with insulation material but this process has to be viewed with scepticism as is the current trend to use novel and untried building systems generally.

Surveyors, who are concerned with the reliability and long-term performance of buildings, are by nature sceptical.

Most construction materials and techniques have evolved over hundreds of years by a process of trial and error. Surveyors acting for mortgage lenders like to be reassured by the sight of well-tried building materials put together in a familiar way.

When something new is proposed such as cladding a tower block with Kingspan and Celotex surveyors need to know that rigorous independent testing has been undertaken within a suitable regulatory framework.

On the evidence presented in relation to Grenfell the regulatory framework in this case failed and the testing was defective.

When a surveyor prepares a mortgage valuation report on a flat the inspection of the property will be brief and the investigation into the nature of the construction sufficient only to confirm that the construction meets the lender’s lending criteria.

The valuation will be subject to the legal adviser confirming that Building Regulations have been complied with in relation to the original construction and any subsequent works such as cladding.

Fire risks

Evidence so far presented at the Grenfell Enquiry suggests that the manufacturers were aware that their products posed serious fire risks and that this was concealed from both regulators and the market so that they could be sold for use on high rise building.

Moreover the local authority Building Control department was under staffed and under resourced. The combination of cladding materials used on Grenfell was wrongly assumed to have been correctly certified and 72 people died.

We now know that dangerous cladding and insulation materials have been installed on tall buildings throughout the country.

Thousands of people are stuck in their homes unable to sell and facing huge bills for remedial works.

Confirming safety

In an attempt to distinguish those blocks which are dangerous from those which are safe a system of professional inspection is now in place and occupants can commission an EWSI external wall fire review certificate.

With the necessary certificate potential buyers can be reassured, flats can be sold and mortgage lenders can lend.

The EWSI External Wall Fire Review Certificate scheme has been put in place by the Building Societies Association and UK Finance and applies to buildings 18 metres or more in height.

The building is inspected by a suitably qualified specialist and the cladding checked to confirm that it is not combustible. This scheme, useful as it is, is specifically addressed to the question of cladding but surveyors advising their clients will be concerned regarding other issues in relation to blocks of flats built, or refurbished, using modern methods of construction.

In contrast to the mortgage valuation inspection a Building Survey is a much more detailed examination and in my career I have prepared many Building Survey reports on flats for prospective buyers, often at the same time as advising their mortgage lender.

A more thorough inspection and an examination of the original plans of the building will often reveal significant concerns regarding many aspects of the construction including fire safety.

Tower blocks should always have at least two stairwells so that occupants being evacuated can go down one whilst the fire services and their equipment come up another (lifts must never be used in a fire).

The building must be divided into compartments with self-closing fire doors between each section and the wall cavities fire stopped between each flat. On exposure we often find that the fire stopping to the cavities within walls is breached due to poor workmanship especially where services such as plumbing and drainage pass through.

It goes without saying that the exterior of a building, whatever its height, should not be clad in any material that burns vigorously and we should look critically also at buildings clad in timber or having timber balconies.

A major overhaul of the procedures for testing and approving building systems generally is likely to be recommended when the Grenfell Enquiry completes its work.

Peter Glover is a surveyor and author of ‘Building Surveys’ and ‘Buying a House or Flat’

Source: Mortgage Finance Gazette