12 April 202412 April 2024 derek

Our meeting with the Building Societies Association

Politics

In January, we met with the Building Societies Association (BSA), to highlight the continuing difficulties that leaseholders affected by the building safety scandal are having with remortgaging and selling their homes.

Chris Busey, Policy Manager, and Paul Broadhead, Head of Mortgages and Housing, wanted to assure us that the BSA’s position is that “no leaseholder should be penalised for an issue that is not of their making.” They also understood our scepticism about over-optimistic government announcements that suggest there is no longer a problem with selling and remortgaging affected properties – and recognised that more needs to be done, both by the Government and the mortgage lending industry, to support leaseholders.

More building societies to commit to lending on affected properties

Alongside UK Finance and RICS, the BSA had supported an “industry statement” in December 2022, which offered assurances that the “big six” mortgage lenders would consider lending on affected flats without requesting an EWS1 form. Instead, leaseholders would only need proof that remediation works would be funded by a recognised scheme (either remediated by a developer or government funding) or that a qualifying leaseholder would be “protected” by a cap on costs, as evidenced by a Leaseholder Deed of Certificate. 

Only one building society, Nationwide, had initially signed up to the pledge, but when three more lenders added their support in December 2023, this included a second building society, Skipton Building Society. 

Even if the pledge was working as intended, the nine lenders that made the commitment only represent around 75% of the mortgage market, which still leaves a quarter of mortgage holders not covered. The building safety crisis is not a short-term problem that will soon pass, so it’s essential that 100% of leaseholders have a pathway to remortgage or sell their properties without having to wait for the remediation of defective buildings to be complete – as this could still be many years away. 

The nine lenders hold a lower share of buy-to-let (BTL) mortgages (around 60%) and therefore other “smaller” lenders are a particularly important source of mortgage finance for non-qualifying leaseholders, but many of those lenders appear to be continuing to adopt a “risk-off” approach. Building Societies are also particularly important for shared ownership (SO) leaseholders, one of the groups most financially affected by the building safety crisis. Leeds Building Society is the largest shared ownership lender and others such as Newbury Building Society have a significant share of SO mortgages.  

The BSA confirmed that more of their members are working to adopt the commitment and begin lending on affected buildings. Although lending policy is a commercial decision for individual lenders, they agreed that the BSA could play a role in educating and sharing information with building societies and brokers. They pointed out that some smaller building societies may not lend on flats at all or may have a policy of only lending on low rise properties, and therefore may have less awareness of the building safety crisis. 

We would welcome the whole sector having the confidence to lend on affected properties but would be particularly keen to see a commitment from those with the largest mortgage books, such as Yorkshire Building Society, Coventry Building Society and Leeds Building Society.

Calling for equal protection for all leaseholders

It’s worth noting that even those lenders that have signed up to the industry pledge have not committed to lending on:

• Buildings under 11 metres

• Enfranchised or leaseholder-owned buildings, which are not covered by the Building Safety Act’s “leaseholder protections” and cannot evidence a cap on non-cladding costs

 • Non-qualifying leases, held by BTL landlords who own or co-own more than three UK properties.

Many people in these groups remain unable to remortgage or sell, unless they sell at a discount to a cash buyer. In our experience, brokers and mortgage lenders don’t understand non-qualifying leases or will actively avoid them; it took one member of our team four months to seek a mortgage on a non-qualifying lease and ultimately all lenders declined to offer a mortgage. There is no route by which the non-qualifying status is ever rescinded from a lease, so this problem could remain in perpetuity if it is not tackled. 

For buildings under 11 metres, even if there are no known defects, it may still be difficult to secure a mortgage without an EWS1 to prove it. Although only a small proportion of buildings of this height may require expensive remediation, the lack of a funding scheme or cap on costs can have a ripple effect on thousands of buildings of this height, because it can lead to some mortgage lenders being cautious to lend. 

The BSA has long recognised that the Government’s decision to exclude leaseholders from protection would have an impact on mortgage lending, for example stating in October 2022 that “Lenders would like to see the building support fund opened to all leaseholders in affected properties, including buy-to-let landlords and those in low-rise blocks under 11 metres.” But since the Building Safety Act passed, even though the problem has not gone away, it appeared as if they had stopped calling for essential changes to Government policy – to comprehensively protect all leaseholders, fund all defects, and fix buildings more quickly – all of which would aid certainty and make lending on affected properties easier for mortgage providers too. 

When we raised this point, we were assured that the BSA remains very supportive and will continue campaigning both behind the scenes and publicly. When Paul Broadhead gave evidence to the Public Bill Committee on the Leasehold and Freehold Reform Bill, only a week after meeting EOCS, he highlighted the potentially “unquantified” costs for non-qualifying leaseholders, who are not protected by a cap on non-cladding costs, and pointed out the continuing difficulty for leaseholders in buildings under 11 metres. 

Ultimately, as Mr Broadhead pointed out in his evidence, the issue has arisen “because the Government has chosen to exclude them from the support scheme.” He confirmed that the BSA would be supportive of amendments to the Building Safety Act, agreeing that “anything that… gives lenders confidence and consumers confidence that their building is safe and they are not going to face an unexpected bill, has to be welcome.” 

In response, the Minister for Building Safety shot back the well-worn government line that it is unlikely that buildings under 11 metres would need remediation. Minister Rowley did not accept the explanation that mortgage lenders sometimes need to ask for an EWS1 on buildings under 11 metres if a RICS surveyor has raised concerns. Unfortunately, the Government wants to have its cake and eat it. It has avoided stepping in to prevent anyone in a low-rise building from being asked to pay thousands of pounds to fix issues they did not cause – but at the same time seems to think mortgage lenders should be unconcerned about the inability to predict which low-rise buildings will be left with significant costs. 

Specific support needed for financially vulnerable customers, including Shared Owners

The building safety crisis can have a significant financial impact on SO leaseholders in particular. As we highlighted to the BSA, the design of the SO scheme means they must buy the maximum percentage they can afford at the outset, which leaves very little headroom for additional costs. It can also be harder to sell a SO property compared to selling on the open market. We asked the BSA to raise awareness of this issue and to encourage their members to consider the following actions: 

• Recognise potential payment difficulties and the pressure of uncontrollable and sometimes substantial costs for leaseholders of affected properties, and apply leniency throughout this period. 
• Always give affected customers the best available rates when they come to the end of their mortgage term,as they are unable to shop around or exit the market at a time of their choosing (lenders should already be doing this). 
• Relax subletting criteria for affected properties, including extending time limits on “consent-to-let” agreements and relaxing other limitations such as maximum sub-let units per building. Subletting may be the only escape route for some leaseholders (including shared owners) who need to move on with their life, but a time limit may not be realistic as it could take many years for all buildings to be remediated. In January 2022, the former Housing Minister wrote to mortgage lenders “strongly encouraging” them to extend the consent to let period and waive the 1% premium for sub-letting. However, not all lenders are following this guidance. In December 2023, he also encouraged housing associations to tailor their approach to subletting and sales valuations to take the building safety crisis into account and lenders should be aware of this change of policy. 
• Consider reducing or removing the exit penalty for anyone forced to accept a new mortgage product due to being unable to sell an affected property at a time of their choosing. Many flats may remain unsellable until remediation has a scheduled start/end date or a clear scope of work or until work is completed – and the timeline for obtaining this information is uncontrollable for the leaseholder. The BSA suggested that lenders could potentially consider creating a separate product for such customers.

Our Asks

• Encourage more building societies to sign the commitment to lend on affected properties. 
• Encourage consistent delivery of the commitment to lend – for example, extra information like remediation start and end dates should not be needed according to the industry statement. 
• Encourage building societies to publish clear information and guidance up-front about what each lender will do – for their existing customers and potential new customers. 
• Share information with building societies and brokers –  especially those with expertise in flats, BTL and shared ownership. 
• Supportive campaigning, to increase the pressure on the Government for a comprehensive funding solution for all leaseholders and all defects, and for homes to be made safe more quickly. 

Call to action!

If you are having issues with mortgage lending that you want to escalate to DLUHC, you can contact [email protected] Please include your full address and postcode, the height of your building or number of storeys (if known and relevant), an overview of the issues you are facing (please attach any relevant documentation), and any reference numbers that you have from previous correspondence with the Department. Please specify the mortgage lender involved and include mortgage reference numbers if known.

Please copy our team at [email protected] so that we are aware of issues being raised and can follow up where necessary. We have been advised that responses should be provided within 20 working days, so please send a chaser email to DLUHC if you do not receive a reply within that time frame.

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