Cladding and other fire safety issues for flats in high-rise buildings could affect roughly 1.5 million flat owners in the UK, many of which will face significant hurdles when trying to sell these flats or obtain a mortgage on them. Insurance premiums may also increase for flat owners, and some will have to pay for safety patrols until the safety issues are resolved.
Analysis from the financial consultant, DBRS Morning Star, based on a sample of 670,000 mortgage loans, found that:
Hotspots for flats are London (28.5%), Glasgow (3.7%), and Edinburgh (3.2%). East London has the most flats, accounting for nearly 7.5% of all UK-wide flats.
House prices would need to decline by more than 20% of their current value for a meaningful number of mortgage borrowers to end up in negative equity.
Fire safety repair bills (even after accounting for differences in labour costs) may not be proportional to the property value. This means that borrowers in the northern UK where property values are cheaper could have repair bills which, relative to their property value, are higher than in London.
Ketan Thaker, head of European RMBS and Covered Bonds, comments: “Borrowers are likely to face higher mortgage costs because of an increase in their mortgage loan-to-value ratios, either as result of reduced flat values or additional debt undertaken to fund repairs.
“DBRS Morningstar’s analysis shows that, assuming that borrowers can remortgage, they may still face higher monthly payments in most cases. Furthermore, the impact could be much more severe for borrowers if they cannot get a new mortgage and have to move onto the lender’s standard variable rates, which tend to be higher.”
Property management operator MetroPM has welcomed a new valuation process issued by the Royal Institution of Chartered Surveyors (RICS) over valuing high-rise properties with cladding.
The industry-wide guidance is titled ‘Valuation of properties in multi-storey, multi-occupancy residential buildings with cladding’, and follows consultation with valuers, leaseholders, lenders, fire safety experts and government.
Matthew Arnold, managing director of MetroPM, explains that the paper had been agreed with the Building Societies Association and UK Finance and will clarify which types of properties will or will not require additional inspections due to concerns about fire safety.
He says: “We welcome this guidance which will help to create clarity and consistency about when a valuer is not required to request further investigation of cladding before valuing a property in a building of multiple occupation.”
“Importantly, it makes it clear that where a valuer or lender can establish that the building owner has met the advice in the consolidated advice note, an EWS1 form should not be required. An EWS1 form would also not be required for a building that is over 18 metres that has a valid building control certificate in place.”
Arnold mentions that MetroPM, which has offices in Birmingham and Cheltenham, is currently dealing with blocks where cladding needs to be removed and so would find the advice ‘extremely useful’.
The guidance details that an EWS1 form will only be required for the following:
Buildings over six storeys with cladding or curtain wall glazing, or vertically stacked balconies made from or connected by combustible materials (such as timber).
Buildings of five or six storeys where there is significant cladding (covering approximately a quarter of the building or more), or there are ACM, MCM or HPL panels on the building, or there are vertically stacked balconies made from or connected by combustible materials.
Buildings of four storeys or less, if there are ACM, MCM or HPL panels on the building.
Arnold adds: “This guidance details exactly when an EWS1 form will be required for valuations, and this will help to simplify the process, enabling more people to buy and sell homes and re-mortgage in high-rise buildings.”
Scottish cladding crisis event calls for transparency for residents
Edinburgh legal firm Watermans Legal is set to address the continued confusion surrounding Scotland’s cladding crisis with a virtual event for residents.
This comes as demand grows for the Scottish Government to allocate funds to homeowners trapped in their unsellable homes due to combustible cladding.
A £100 million pot of funding was made available to the Scottish Government last year to help tackle the crisis, with mounting pressure on the Scottish Housing Minister, Kevin Stewart, to put an action plan into place to use the funds.
The virtual event – bringing together leading experts from Watermans Legal, Fire Risk Assessment (Scotland) Ltd, J&E Shepherd Chartered Surveyors and Residential Surveyor and M&W Mortgages – will address how cladding issues can affect selling, buying and the mortgaging of properties.
The importance of obtaining and instructing an External Wall Fire Risk Review (EWS1 form), which confirms that a building does not pose a fire risk, will also form a key part of the event’s agenda.
Shawn Wood, a solicitor at Watermans Legal who will be speaking at the event, comments: “The topic of cladding is so closely aligned with England. There’s not nearly as much focus on how it affects Scottish residents.”
“We’re receiving a growing number of calls from people with concerns about their properties and the incurring costs which is why we felt it was necessary to host this event. It’s an opportunity to gather Scotland’s cladding experts and share our knowledge with the public.”
Many people in Scotland who are affected by the cladding crisis have been left confused, with no helpful responses despite huge company profits from builders and the construction industry.
Wood says residents have inherited these problems through no fault of their own.
“Many people are feeling trapped as their homes are effectively worthless if a Home Report returns ‘category threes’ for their external main walls,” he adds. “Obtaining an External Wall Fire Risk Review form, which demonstrates to a buyer that there isn’t a fire risk, can also be timely and expensive due to a shortage of professionals with the necessary qualifications to carry out these specialist reports.”
“If all homeowners were to fix the problem of combustible cladding it could cost tens of thousands of pounds per property which leave many concerned that they will be left to foot the bill if their building is found to have combustible cladding. With the Government’s plan to support Scotland still to be announced, we want to offer any advice that we can to help alleviate people’s fears.”
The Cladding Crisis in Scotland online event takes place on Thursday March 18 from 6-8pm. Interested parties can sign up for free here.
Source: Property Investor Today