Despite previous assurances from the big six mortgage lenders, far too many leaseholders of flats affected by cladding and other safety defects are still unable to sell or remortgage their homes.
As part of our campaign to ensure all stakeholders play their part in bringing a fair and speedy resolution to the building safety crisis, on 19th July we attended the AGM of the UK’s third largest mortgage provider, Nationwide Building Society, to question the Board. This was followed by a meeting on 1st September with their Head of Property Risk, Rob Stevens, alongside some of his colleagues.
Urgent action is needed to let leaseholders move on with their lives
In the years since Grenfell, as the scale of the building safety crisis exploded, the market for buying and selling flats unsurprisingly nosedived. As well as breaking the first rung of the ladder for first-time buyers, almost any property sale could be affected if a flat is in the chain. Rebooting mortgage lending on affected properties therefore isn’t an optional “nice-to-have”; it is essential to get the housing market moving again.
It is clear that it could take many more years until all buildings are remediated, so in the meantime, there must be a workable solution that allows trapped leaseholders to move on with their lives. This needs to happen not just for a small number of properties, but at real scale – and without any further financial penalties for those who do manage to sell or remortgage.
Six years into this crisis, many people desperately need to sell – because they can no longer afford their home, or their circumstances have changed. They may need to relocate for work, move in with a partner, or upsize to allow their families to grow in a safe space. Others simply need to remortgage with the same choice as any other consumer, without being forced onto a variable rate when rates are soaring – which many leaseholders cannot afford on top of the sky-high costs they have already endured for waking watch, building insurance and fire surveys.
The Industry Statement on Cladding in December 2022 had assured leaseholders that the big six mortgage lenders would now only need proof that remediation work would be funded by a recognised scheme (either developer or government funding) or that a qualifying leaseholder was “protected” by a cap on costs, as evidenced by a Leaseholder Deed of Certificate. But the feedback is that it remains much more difficult on the ground. In fact, the latest EWS1 statistics for Q2 2023 show that the number of mortgage valuations where EWS1 forms are requested is increasing.
In our recent survey, 80% of respondents who had tried to remortgage, or sell to a buyer who required a mortgage, said they had been unable to do so. Many people are still being asked to meet extra hurdles – such as needing an EWS1 form or start and end dates for remediation work – both of which are often unobtainable and shouldn’t be required, according to the industry statement.
The Chair of the Society of Licensed Conveyancers said earlier this year that more government intervention is going to be necessary because action taken so far has not made flats more sellable, and Nationwide is often highlighted as one of the providers that presents more difficulties. Their lengthy lending criteria can be seen in the Lenders’ Handbook and on Nationwide’s website.
“Moving in the right direction”
Rob Stevens, Nationwide’s Head of Property Risk, told us that he disagreed with the perception that they are taking a more risk-averse approach than other mortgage lenders. He said they ask a lot more questions up front to avoid a sale collapsing later in the process.
He highlighted the building society’s ethical obligation to look after the best interests of potential borrowers by taking account of the risk to them. We pointed out that there must also be a duty of care to existing mortgage holders, who need much more support to ensure they do not remain unnecessarily trapped in their homes.
We were told Nationwide has seen a “significant” increase in sales of affected flats since January and that things are “moving in the right direction”, but there wasn’t a clear answer about how transaction volumes compared to pre-Grenfell times. We accept that other general market factors will have affected the ability to sell or remortgage this year, but it must be possible to size those against a control group of non-affected buildings.
Nationwide’s view is that it will take time for lending on affected flats to “bed in” and the volume will increase over time. However, our concern is that the bedding-in process is far too slow and, particularly with interest rates having risen 1.75% since the start of the year, every month that passes is a month too long for those who have already been trapped for years.
We heard that Nationwide has been educating other building societies, to try to get more of them on board with the industry agreement – something that we might expect the Government to be doing. Expanding the list of lenders could be of most interest to shared ownership leaseholders, where the propensity to hold a mortgage with a smaller building society is higher. However, just signing up to the agreement won’t be enough in itself to get things moving, as we have seen from the original six lenders (note, TSB have recently become the seventh).
Mr Stevens suggested that part of the reason leaseholders still have the impression that they are unable to sell may be due to a lag in estate agents providing the right information, if they are still (incorrectly) telling leaseholders they can only sell to cash buyers at a reduced price, when things have actually improved. That sector clearly needs more of an education effort; however, as we have repeatedly told the Department for Levelling Up, Housing and Communities (DLUHC), our firm view is that there will need to be a much more significant increase in successful mortgage applications, establishing much more consistency of outcomes from lenders, before agent expectations will shift.
Nationwide also said that conveyancers need more training to understand the legislation, and that they are having to play an educational role here too – presenting at conferences, for example. However, the advice they are giving is that the legislation is too complex for any conveyancer who is only going to dabble in the occasional case. In July, The Law Society confirmed that it is in regular contact with DLUHC to reflect these concerns. Unfortunately, the Government does not appear to have thought through the practical implications and barriers to the sales process that they have created.
We are also concerned that while the Government has focused on purely “getting the market moving”, leaseholders often report that when they are able to sell, it is at a reduced price – incurring yet another financial loss from the building safety crisis that is not covered within the “leaseholder protections”. We asked Mr Stevens if valuers are taking account of disruption and loss of amenity for a future buyer and whether impaired valuations are evident from their data. We were told that Nationwide has no evidence of this so far, but they agreed it was a possibility which may become more evident over time.
It was also clear that the workload for each mortgage lending decision has exponentially increased because of the complex nature of funding schemes and leaseholder protections, as well as difficulties with landlord and leaseholder certificates. Even senior employees like Mr Stevens are getting sucked into the detail of fire risk assessments of the external wall (FRAEW) and multiple other pieces of correspondence for each case, to make very individualised decisions on the financial risks related to building safety.
Buildings under 11 metres
Perhaps what is most striking about Nationwide’s lending criteria are the lengthy requirements for buildings under 11 metres – which should be out of scope for expensive remediation work in almost all cases, according to the Government.
Nationwide’s guidance says that if valuers have any “concerns”, they will decline to lend on buildings under 11 metres without an EWS1 form. This immediately traps thousands of leaseholders, who cannot get their freeholder to commission an EWS1, as buildings of this height are meant to be out of scope for the form.
If the building does have an EWS1 and it requires remediation which a leaseholder might have to pay for, the next hurdle is that Nationwide requires planned dates for work. Again, this will lock many leaseholders out of mortgages, as countless cases remain in limbo without any timeline.
Even if a building owner confirms that no costs will be passed onto leaseholders, Nationwide has an even more stringent requirement that “remediation will take place within a reasonable timescale (12 months)”. The “12 months” requirement doesn’t exist for taller buildings, so why for this segment? To give just one example, large landlord L&Q has told many leaseholders they will not start work until 2025 at the earliest. Under 11 metre buildings are typically “back of the queue” for assessment and remediation, so 12 months is a pipe dream in most cases – but why should a longer timeline prevent them from being able to sell to a buyer who knows this information up front?
We shared various examples with Nationwide, such as Laura’s block in London which is under 11 metres and has cement-based cladding. Her housing association won’t commission an EWS1, because a building of that height should be out of scope and there are no safety concerns. It provided detailed information on materials, as-built drawings and an up-to-date fire risk assessment but that didn’t satisfy Nationwide – and so her sale fell through.
In Bristol, Sarah’s freeholder has not yet commissioned a FRAEW but anticipates a B1 rating based on the building height (3 storeys) and the type of defect (gaps in the fire stopping) and a previous EWS1. Nationwide refused her buyer a mortgage, even though Sarah already holds her own mortgage with Nationwide, which means it would not be exposed to any additional risk.
Mr Stevens emphasised that it is the complete absence of any funding solution for buildings under 11 metres that is making the lending decision far more complicated (they are excluded from both developer contracts and government funding schemes). This is coupled with a continuing lack of certainty over the circumstances in which remediation is needed for buildings of this height and there often being a lack of consensus between stakeholders; for example, fire chiefs or insurers might still require work to be done. If the Government could provide more certainty, it would be far easier to quantify the risk and ease the mortgage lending process.
The irony is that the Government says this segment of buildings should have the smallest numbers that are high-risk – but it could end up being the last part of the housing market to remain stuck, with detrimental consequences for the entire market. Even if their building is safe and requires no remedial work, leaseholders will remain utterly trapped if they cannot remortgage or sell while lenders continue to put barriers in the way and remain cautious about potential liability.
An estimated 400,000 mid- and high-rise flats are owned by leaseholders who own more than three UK properties. Their costs to fix non-cladding defects are uncapped, unless the properties are covered by a developer contract (only 10%-15% of affected buildings). The non-qualifying status is also passed on to the future buyer, regardless of their own circumstances – which makes them an unattractive option to buyers. Furthermore, all of a non-qualifying leaseholder’s properties are affected by the stigma of this status, even those that don’t have any defects.
The non-qualifying status also lasts in perpetuity, with no mechanism to remove it once remediation is carried out. Mr Stevens seemed to agree with us that it is nonsensical for this non-qualifying status to remain after remediation, but said that they would be unable to see if this has any enduring impact on the ability to sell or the property value until a greater volume of remediation projects finish.
All of this means that, despite the threat of huge bills which may be payable within just 28 days, non-qualifying leaseholders usually find they cannot sell any of their properties – even those unaffected by defects – in order to raise the funds they might need.
However, Nationwide did not admit to any concern about the risk of large numbers of people defaulting on their mortgage. This may partly be because many leaseholders facing bankruptcy haven’t reached the tipping point yet – as so many buildings are still in limbo and freeholders are meant to pursue alternative sources of funding first before they can pass costs to leaseholders.
In many cases, there are long delays while developers call in their own assessors to reassess the scope of work they will cover and what they will leave out – which non-qualifying leaseholders may be back on the hook to pay for. Mr Stevens mentioned, for example, that he has to look at disputes about the gap between life-critical remediation versus other relevant defects, and consider whether works could be classed as “betterment”, so that Nationwide can assess the financial risk to potential buyers. Like innocent leaseholders across the country, Nationwide is forced to wait for such disputes to be settled behind the scenes. There is no outward sign of the Government having oversight over the actions of these developers as they try to reduce their scope of work.
This process could take years to play out, but non-qualifying leaseholders surely cannot remain unable to sell or remortgage for that long, so what is the solution for them?
More guidance and support needed for those who are trapped
We highlighted the lack of advice aimed at those leaseholders who are unable to sell – and noted that we would like to see more specific guidance and support to help people who are affected. For example, can Nationwide offer additional support for those in financial difficulty as a direct result of building safety costs, or as an indirect result of being unable to sell because of building safety issues? Can affected customers release equity to pay for remediation if they receive huge bills and a demand to pay with 28 days’ notice or if they face legal action and potential forfeiture? Can Nationwide always commit to offering affected customers a new fixed rate mortgage or making a buy-to-let rate available for those who need to become accidental landlords?
We were advised that any leaseholder in financial distress should talk to their mortgage provider as early as possible as they may be able to help.
Calling on the Government for better solutions
It is very clear to us that mortgage lenders have a common interest with leaseholders in calling on the Government to extend financial protections for leaseholders.
A simple guarantee of full, up-front remediation funding by the Government – for all buildings heights and all types of defect, with no leaseholder exclusions – would remove the complications that mortgage lenders are experiencing and make it much more straightforward to determine risk. Mr Stevens did not disagree that confidence and certainty would return very quickly if all leaseholders were seen and treated as being blameless and not exposed to unfair costs.
We noted that in previous years, Nationwide had publicly called on the Government to do more to solve the deadlock. Mr Stevens had been quoted in the press saying that “The solution to the cladding crisis is to make the buildings safe and the best way to achieve this would be through the expansion of the building safety fund to cover all affected properties.” We asked why Nationwide had stopped calling on the Government to extend funding solutions to all affected properties.
We were told that Nationwide is actively engaging with the Government behind the scenes and has monthly meetings with Minister Rowley’s team in DLUHC, where they share data and feed in examples of the challenges on the ground, to try to influence and improve the situation.
Nationwide has been quite encouraged to see that the Government has been prepared to make some changes in response to previous feedback from lenders and others – for example, recognising the need to address the issue whereby lease extensions cause leaseholders to lose their qualifying status. But they also highlighted very simple things the Government could do to make mortgage lending much easier, more quickly – for example, there still isn’t a checkable database of verified information on the status of each building, which would help lenders to triage properties better.
We ended the meeting by explicitly asking Nationwide to use their influence to publicly call for a more comprehensive remediation funding solution – for all building heights, all defects and all leaseholders – either directly or through the Building Societies Association.
Thank you to Rob Stevens and his colleagues for meeting with us. We will be keeping a close eye on leaseholder feedback about Nationwide mortgage lending in the months ahead and will continue to engage with other lenders as we try to push for fairer and much faster solutions to this crisis.
If you have a current account, savings account or mortgage with a building society, then you may be eligible to attend their AGM. We would be happy to help you prepare a question to ask the Board about mortgage lending on flats affected by the building safety crisis, so please contact us if you would like to get involved in the campaign.
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