Can I get a mortgage? - it's got cladding
As everyone knows the horrendous Grenfall Tower is the starting off point for where we are currently. But the cladding issue is not just restricted to cladding but covers other combustible insulations that form part of the cladding including the materials used behind the cladding and anything attached to the buildings ie balconies. That's why sometimes when you see a Home Report reference is made to requiring an EWS1 form where there appears to be no sign of external cladding.
For many, it will be obvious that you have cladding but there will be occasions where it will come as a shock to the owner that they require an EWS 1 form - more about that later. The first thing you need to do is get a Home Report. That will identify if you need the EWS1 form
Shortly after the fire, there was almost a blanket ban on lending any property that appeared to have cladding following government action. The lenders all closed ranks and owners and buyers were placed in limbo for what seemed like months. The lenders citing the dangerous nature of cladding which could lead to serious health and financial risk. With the typical estimated cost of repair in the region of £40-50K per flat, increased building insurance, and costs associated with having 24-hour fire warden security there seemed to be no solution in sight.
Thankfully a solution has been found to at least unblock those who are trying to sell, those trying to buy, and those that want to refinance their existing property. And that solution comes in the shape of a document known as an EWS1 form prepared by a qualified, insured Chartered Fire Engineer who will undertake the required survey.
If a property is affected by cladding then the surveyor will state this in the Home Report. I have seen reports state the externals as a 3 on the report, I have seen the surveyor refuse to put a value on the property unless there is an acceptable EWS1 form and I have seen reports that just mention cladding and do not make reference to the EWS1 form. There appears to be no uniformity as far as I have seen. It will be down to the governing body for surveyors RICS to give guidance to their surveyors as to when an EWS1 form will be required and when it will not. Their guidance will be key as to how the lenders deal with this moving forward.
The seller should pay for the cost of the report.
Knowing that you need an EWS1 form is just the beginning.
There are few people who are qualified to prepare the EWS1 form. This means that there will be a delay in getting this carried out, In addition, currently EWS1 forms require to be instructed for each flat by each individual owner despite the fact that it covers the whole building. As the cladding issue becomes a big problem there must be a solution whereby there is a universal EWS1 form that every owner can rely upon. Saving time and money. EWS1 forms should be seen as a necessary health and safety requirement, not an excuse for people to make money from.
The EWS1 report then categorises the type of cladding. Lenders do not want to lend on buildings that are rated A3 or B2. Some lenders are adopting different positions on A3 ratings so liaise with lenders on this on a case by case basis. Lenders are usually prepared to lend on buildings that are rated A1, A2, and B1. Option B2 is a fail. If you do not get a pass then the property becomes unmortgageable and therefore potentially worthless. Ultimately it will be the lender's interpretation of the EWS1 form that will decide whether a mortgage offer will be issued and that decision can take time (see below)
It has a shelf life of 5 years. It will need to be renewed. Could there be a situation where because of changes in legislation the EWS1 cannot be renewed in the same terms?
What can you do as a seller or owner?
Make sure that you know whether your property has cladding. If you have a factor then raise this with them.
Get the EWS1 form as soon as possible
Instruct a reputable company to carry out the EWS1 - unbelievably there is already a trade-in forged EWS1 forms.
What can you do as a purchaser?
Do not agree on an early date of entry. Even if you have an EWS1 form, your lender will require time to approve the form. I have come across circumstances where lenders are taking independent advice from their insurers as to whether they can lend on the terms of the EWS1 form. In one case Nat West have had to send this to Legal & General leading to delays in the issuing of the offer
Understand that the EWS1 form will only last 5 years and you will be on the hook to get this updated unless there is a change in the legislation allowing a universal certificate to be agreed
Be cautious. If the Home Report suggests that there is cladding then I would be demanding an EWS1 form.
As ever, If you wanted to chat through anything raised in this article then please do not hesitate to get in touch.
Since writing this the UK Government has released confirmation of a billion-pound scheme that will go some way to sorting the mess out by having the defective cladding replaced. The Scottish Government already has £100 million for this and the UK Government state that they will receive further assistance from them from this latest tranche but a decision has to be reached as to how this is to be spent - and that is the biggest headache of all!