MortgagesJun 28 2021

Govt's cladding scheme delays driving market-wide 'log jam'

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Govt's cladding scheme delays driving market-wide 'log jam'

With the UK government’s multi-billion pound funding promise to leaseholders to limit cladding costs still nowhere to be seen, lenders have expressed their frustration at the market-wide “log jam” which has ensued for homeowners.

Back in February, housing secretary Robert Jenrick announced a £3.5bn government-backed financing arrangement for buildings between 11 and 18 metres tall. 

He suggested no leaseholder would ever have to pay more than £50 a month towards the removal of unsafe cladding, in response to new requirements written into law after the Grenfell Tower fire in June 2017.

But with the details of the scheme yet to be published, lenders’ customers are struggling to understand their liabilities.

“We still don’t know what the details are for five and six-storey buildings,” Nationwide’s head of property risk, Rob Stevens, told FTAdviser, adding the industry was under no illusion that funding was “imminent”.

For those looking to remortgage or borrow against a house or flat with potentially unsafe cladding, or borrowers looking to invest in such a property, “it’s very difficult [for lenders] to make an assessment on affordability”, Stevens explained.

“This creates a log jam in the market. It’s a real sticking point, because we don’t know what’s covered. This affects the building owner and the consumer, as well as us.”

He continued: “It’s difficult for the customer, because they don’t know what their liabilities will be, and so remediations on buildings are also being held back. It impacts everybody in the chain.”

Tony Hall, head of mortgage sales at Saffron Building Society, agreed. He said with many leaseholders “stuck with potentially unsaleable property”, the owners “can’t realise the asset it should be, or realise it at all”. He called it “a real spider’s web of challenges”.

Some lenders are allowing customers to move to new mortgage rates despite their building’s cladding status, but certain conditions remain.

A Santander spokesperson told FTAdviser: “Cladding does not impact an existing mortgage customer’s ability to complete a product transfer with us and move to a new mortgage rate when they are not taking on any additional borrowing, or changing the mortgage term.”

Lloyds suggested it “will consider property with cladding” for new borrowers and current leaseholders. “Lending decisions are made case-by-case, and based on the valuation and our general lending policy,” a spokesperson said. 

Clear guidance needed

Industry trade body UK Finance also said “affordability issues remain for many leaseholders who purchased their properties in good faith”.

It added: “There is a pressing need for the government to provide clarity on its grant and loan schemes, as well as how non-cladding works will be funded.”

Details around the government’s loan scheme were supposed to be available in March, which makes the government three months late on its initial promise.

The Ministry of Housing, Communities & Local Government (MHCL) said: "Further details on the finance scheme for buildings between 11 and 18 metres will be announced in due course."

The government department went on to cite its Building Safety Fund, a £1bn scheme announced back in the March 2020 Budget to support the remediation of unsafe cladding systems on residential buildings 18 metres and above.

"We are progressing applications to the Building Safety Fund as quickly as possible. Despite many building owners failing to provide the basic information required, more than 600 buildings with estimated remediation costs of £2.5bn are now proceeding with a full application."

Like the Building Safety Fund, the reserves for buildings under 18 metres only cover cladding, and not smoke alarms, fire alarms, and dry risers, which will all impact property value and affordability. One industry source told FTAdviser this will likely be a “future saga”.

This is why lenders are calling for more consistent, government-led messaging. Saffron’s Hall said the industry needs “clearer guidance from the government”. 

He continued: “Let’s get this standardised. It’s very hard to write policy when it changes all the time.”