Lenders to offer mortgages on flats with cladding under new guidance

Lenders to offer mortgages on flats with cladding under new guidance

Leaseholders and prospective buyers will now have more clarity on purchasing homes with building safety issues, such as cladding, following an update from mortgage lenders and the Royal Institution of Chartered Surveyors.

Updated Rics guidance, to be in place from January 9 2023, will help value properties with cladding and enable mortgage lending on affected properties. 

The new guidance means that lenders will be able to consider mortgage applications on properties in England of 11 metres and more in height.

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The move follows the implementation of commitments made by mortgage lenders in an industry statement earlier this year.

Under the new guidance, lenders will need evidence that buildings will be self-remediated by developers or covered by a recognised government scheme or by leaseholder protections within the Building Safety Act.

It is hoped that the new guidance will restore confidence in the market, with a number of lenders committing to ensure those who want to buy or remortgage flats affected by building safety issues will be able to access mortgage finance.

Lenders currently supporting the scheme are Barclays Bank, HSBC, Lloyds Banking Group, Nationwide Building Society, NatWest, Santander.

The statement was also supported by the Building Societies Association, and UK Finance.

A UK Finance spokesperson said: “Banks and building societies have been lending on flats, often without requiring an EWS1 form. However, for medium and high-rise buildings in England with cladding and building safety issues, today’s announcement is a significant step to enable lending to recommence.

“This means that lenders can more easily keep the market moving by providing a range of mortgage products for customers seeking to purchase or re-mortgage flats impacted by cladding.”

The update has also been met with tentative optimism from mortgage brokers.

Speaking to FTAdviser, Oportfolio Mortgages content and communications manager, Louis Mason said it is an issue that has impacted a number of the firm’s clients.

“A lot of clients have been left as mortgage prisoners due to building issues like cladding throughout the last few years. Some clients of ours haven’t been able to sell or remortgage because of it,” Mason said.

“We all understand the severity of Grenfell and how sensible measures need to be taken. However, like many things this has meant a lot of properties have been viewed as non-mortgageable and some unfairly dealt with a broad brushstroke.”

Mason added: “If any positive changes are made to help clients in this predicament and ensure the safety of purchasers, we are grateful and do feel we need to apply sensible and logical rules to the situation.

“I know lenders are looking to help people buying or remortgaging, who are struggling in this way, but we will have to wait and see how the changes affect our clients who are struggling and have been for the last few years.”

Yesterday, Lloyds Bank issued a statement updating its lending policy for cladding following the publication of the Rics guidance and informed borrowers and brokers that it would no longer require an EWS1- external wall application form- form to process applications for properties in England that are in buildings five storeys or higher.