Why are so many leaseholders still unable to remortgage or sell their homes, despite previous assurances that banks would lend on properties affected by cladding and building safety defects?
As part of our ongoing campaign to ensure all relevant stakeholders play their part in bringing a fair and speedy resolution to this crisis, we attended the Barclays AGM on 3rd May to put our questions to the Board.
It could take many more years until all buildings with safety defects are remediated so it is imperative, in the meantime, that affected leaseholders have the freedom to move on with our lives. Some leaseholders desperately need to move home – to relocate for work, move in with a partner, or upsize to allow our families to grow in a safe space. Others simply need to be able to remortgage without being forced onto their bank’s Standard Variable Rate, where they may be exposed to rapidly escalating interest rates, without any other choice available.
The Industry Statement on Cladding, signed by six big mortgage lenders in December 2022, offered assurances that they would lend again on flats affected by building safety issues. Leaseholders would only need evidence that remediation work will be funded by a developer or a recognised government scheme or covered by the leaseholder protections, as evidenced by a Leaseholder Deed of Certificate.
But the feedback from leaseholders is that this is still not happening in practice. In our recent survey, 79% of leaseholders affected by the building safety crisis said they were still unable to remortgage, or their potential buyer could not get a mortgage.
Even where remediation costs will be covered by a recognised funding scheme or a “qualifying” leaseholder has a clear cap on potential costs, many are still being asked to meet extra hurdles – such as needing an EWS1 form or start and end dates for work – which should no longer be required, according to the industry statement.
The Chair of the Society of Licensed Conveyancers has also said that more government intervention is necessary because action taken by mortgage lenders so far has not made flats more sellable. Barclays has been highlighted as one of the lenders that is making it harder to get a mortgage on an affected property; the additional criteria employed by Barclays is detailed in the Lenders’ Handbook.
Barclays’ response to our questions
Barclays’ Annual General Meeting was a rather lively affair, repeatedly disrupted by climate activists and dominated by more than twenty shareholder questions about the bank’s approach to the climate crisis. It was very evident that repeated and persistent shareholder activism can be a powerful tool for raising awareness, holding companies to account and influencing their policies.
Thanks to ShareAction, who kindly loaned us a share, we took the opportunity to attend the AGM and question the Board directly about how their policies are affecting leaseholders. We received a limited response during the meeting, but the Chair agreed they would follow up with a detailed response, which we received a week later.
Barclays’ full written response to our questions can be seen here.
In response to our first question, Barclays confirmed that – even in cases where remediation is fully funded – it has an additional special assumption requesting that the “current status of the building” and the “issues potentially faced” are “adequately reflected in the valuation” in order to “protect [the] purchasing customer.”
This confirms that the price innocent leaseholders are paying for the building safety crisis goes beyond the costs of the remediation work itself or even the interim costs like soaring building insurance and waking watch, which are taken into account in the RICS valuation framework. A leaseholder who needs to sell their home can also expect that their property valuation may be impaired, particularly if the timeline is long or the scope of work is extensive. It is clear that the so-called “leaseholder protections” in the Building Safety Act have not protected leaseholders from these losses, with the Government focusing on merely getting the flat sales market “moving” again and ignoring the impact on unfair valuations for those who need to sell before this long-running crisis is over.
In our second question, we asked Barclays why so many leaseholders in buildings under 11 metres are being told there is no point in trying to sell or remortgage without an EWS1, even though their building should be out of scope for such a requirement. In their response, Barclays told us that “very few buildings under 11 metres come into scope for an EWS1” – but not none. They admitted an EWS1 may still be requested for buildings under 11 metres, in cases where such buildings raise a “particular concern” for valuers. This mirrors the issues encountered with the original EWS1, where the Government’s advice to stop EWS1 checks below the 18-metre threshold was rejected, leaving leaseholders in a Catch 22 situation because valuers continued to request an EWS1 below that height “where specific concerns exist”. The same problem remains today, but now at the 11-metre threshold.
Surely this must come as a surprise to government ministers and officials, whose guidance continues to insist that buildings under 11 metres are not likely to require remediation – so why would they ever require an EWS1 certificate as a condition of being able to remortgage? Low-rise buildings are generally back of the queue for such risk assessments and leaseholders could be trapped for years without one.
The response to our third question highlights the continued barriers that non-qualifying leaseholders face in being able to remortgage. Barclays said, “The non-qualifying status is generally only relevant where government funding is applied for. Where a developer has committed to paying in full for remediation, the status of the leaseholder has no impact.”
It is clear from Barclays’ response that the non-qualifying status continues to affect their decisions on mortgage lending, except for cases where developers have agreed self-remediation, which only covers 10%–15% of affected buildings.
In practice, government funding has always been on a “whole building” basis, protecting both qualifying and non-qualifying leaseholders from cladding remediation costs, but we have repeatedly raised the point with DLUHC officials that there must be very clear and specific written guidance on the position for non-qualifying leaseholders, including in relation to whether they may ever have to pay for cladding remediation; we note that the online checker still says they “might” have to pay. We continue to press for unambiguous government guidance for non-qualifying leaseholders.
Do you own shares in a property developer, freeholder, insurer, mortgage lender or any other company that is connected to the building safety crisis? Would you like to support the campaign by asking questions at their AGM? We would be happy to help you prepare your question, so please contact us if you would like to get involved in shareholder action.
The End Our Cladding Scandal campaign calls on the Government to lead an urgent, national effort to fix the building safety crisis.
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