Regulation  

Mortgage market suffering under cladding crisis

Mortgage market suffering under cladding crisis
 Credit: Hannah McKay/Reuters via Fotoware

It has not been that long since the mortgage market almost ground to a halt last year during the first coronavirus lockdown, as lenders pulled high loan-to-value mortgages and physical valuations could not take place.

Although the market has been experiencing something of a boom recently, there are concerns over how house prices will react if and when the stamp duty holiday extension comes to an end on March 31.

And with the cladding crisis, the housing sector has been dealt another blow as hundreds of thousands of leaseholders have been left unable to sell, mortgage or remortgage their properties.

Carl Shave, director at Just Mortgage Brokers, says: “The position for many of our clients has been very similar, if not identical, to those across the country; situations of chains collapsing or simple non-starters where cladding has been raised as an issue, either at the outset or further down the line once surveyors have frequented the property.

“Other than offering advice, there has been little we have been able to do. Lenders' criteria and regulation have stifled our ability to assist in any great way those who have been affected by this matter.”   

Bulent Kandemir, managing director at Intra Private Finance, comments: “We have a client in west London [who has been] looking to sell a property [for the past 12 months].

“However, between the managing agents [and building owners who manage the repairs], changes in government regulations – unprepared and rushed through changes – and the lack of qualified surveyors/sub-contractors able to do [studies required by lenders to approve mortgages], it has meant that the sale/purchase has not gone through.”

One of the big issues brokers have encountered has been the blanket approach from lenders.

Shave says education across the sector, not only for brokers but also lenders, has been an issue, with many simply not fully understanding the implications and requirements of the cladding situation. 

He adds: “Lenders are seemingly taking the hard route of simply deeming any flat at risk of cladding issues as non-mortgageable and owners are having to consider selling for lower prices to cash buyers.”

Gathering data

The scale of the crisis is huge, but how big is unclear.

The government does not have the complete data on how many of the circa 80,000 building blocks in England between 11 and 18 metres in height have unsafe cladding.

But it has begun a pilot data collection project for 11-18 metre residential buildings to identify materials in use to feed into a wider national 11-18 metre data collection exercise. 

Number of buildings identified with ACM cladding systems unlikely to meet building regulations by tenure, at 31 January 2021
TenureNumber of buildings this monthNumber of buildings last monthMonthly Change
Social sector residential1561560
Private sector residential213214-1
Student accommodation54540
Hotels29290
Publicly owned buildings990
Total461462-1

Source: Ministry of Housing, Communities and Local Government

The demand for EWS1 forms – an industry-formulated building assessment lenders require to approve a mortgage – has also significantly increased after the government lowered the threshold for the ban on combustible cladding in buildings to 11 metres from 18 and above, creating a serious backlog.