Remortgage With Cladding Issues

Understanding Cladding Issues and Mortgages

Following the Grenfell Tower tragedy in 2017, the safety of external wall systems on residential buildings came under intense scrutiny. Thousands of buildings across the UK were found to have potentially unsafe cladding, and lenders became reluctant to offer mortgages on properties in affected buildings.

The key issues that affect mortgage lending include:

• Aluminium Composite Material (ACM) cladding — The type of cladding involved in the Grenfell Tower fire. Buildings with ACM cladding that has not been remediated are effectively unmortgageable with most lenders.
• Other forms of unsafe cladding — Including High Pressure Laminate (HPL), rendered insulation systems, and timber cladding. The risk level depends on the specific materials, the building height, and the overall design of the external wall system.
• Missing or inadequate fire breaks — Even without combustible cladding, buildings may have issues with missing fire barriers or cavity barriers that allow fire to spread through external wall systems.
• Balcony construction — Some buildings have balconies constructed with combustible materials, which can also affect fire safety assessments.

For mortgage purposes, the critical question is whether the building has been assessed as safe and, if not, what remediation plans are in place.

EWS1 Forms: What You Need to Know

The EWS1 (External Wall System) form was introduced in December 2019 as a standardised way of assessing the fire safety of external wall systems on residential buildings. It provides lenders and valuers with a clear indication of whether a building is considered safe for mortgage purposes.

Who needs an EWS1 form?

The requirements have evolved over time. Initially, EWS1 forms were required for a very wide range of buildings, but the guidance has since been narrowed. As of the latest guidance from the Royal Institution of Chartered Surveyors (RICS):

• Buildings below 11 metres (roughly four storeys) generally do not require an EWS1 form unless there are known concerns about the external wall system.
• Buildings between 11 metres and 18 metres may require an EWS1 form depending on the construction and materials used.
• Buildings over 18 metres (roughly six storeys) are more likely to require an EWS1 form, particularly if they have any form of cladding system.

EWS1 ratings explained:

The EWS1 form uses a simple rating system:

• A1 — No combustible materials in the external wall. No further action required.
• A2 — Combustible materials present but in limited quantity. No remediation required.
• A3 — Combustible materials present but with adequate fire safety provisions in place. No remediation required.
• B1 — Combustible materials present and remediation or mitigation works may be needed. A further risk assessment is recommended but the building can still be occupied.
• B2 — Combustible materials present and remediation is required. This is the most problematic rating for mortgage purposes.

Most lenders will accept properties with A1, A2, or A3 ratings without issue. A B1 rating is more challenging but some lenders may still consider it. A B2 rating makes it very difficult to obtain a mortgage until remediation is complete.

The Building Safety Act and Leaseholder Protections

The Building Safety Act 2022 introduced important protections for leaseholders in buildings affected by cladding and other fire safety issues.

Key protections for leaseholders:

• Buildings over 11 metres — Qualifying leaseholders in buildings over 11 metres are protected from costs associated with the remediation of historical building safety defects, including the removal and replacement of unsafe cladding.
• Building Safety Fund — The government's Building Safety Fund provides financial support for the remediation of buildings over 11 metres with unsafe cladding.
• Developer responsibility — Major housebuilders have signed contracts committing to fix life-critical fire safety defects in buildings they developed that are over 11 metres.
• Responsible Actors Scheme — Developers who do not sign up to the remediation contract face restrictions on building control approval and other consequences.

What this means for remortgaging:

The leaseholder protections under the Building Safety Act are positive for remortgaging because they reduce the financial liability on leaseholders for remediation costs. This has made some lenders more willing to consider properties in affected buildings, particularly where there is a clear remediation plan and timeline.

However, the situation remains complex, and lender attitudes vary. Some lenders are now willing to lend on buildings with a B1 EWS1 rating where remediation is planned, while others still require remediation to be complete before they will offer a mortgage.

Your Remortgage Options With Cladding Issues

If your building has cladding issues, here are the main options available to you when looking to remortgage:

Product transfer with your existing lender

This is often the most straightforward option. A product transfer involves switching to a new deal with your current lender without a full remortgage application. Because the lender already holds the mortgage, they typically do not require a new valuation, which means the cladding issue may not come into play. This can help you move off an expensive SVR onto a better rate.

Lenders who accept buildings with remediation plans

A growing number of lenders are willing to consider properties in buildings where cladding issues have been identified but a clear remediation plan is in place. Evidence of a government fund allocation, a signed developer remediation contract, or an active building safety case can help support your application.

Post-remediation remortgage

Once remediation work is complete and the building receives a satisfactory EWS1 assessment (typically A1, A2, or A3), your remortgage options should return to near-normal. At this point, you can shop around for the most competitive deals on the open market.

Specialist lenders

Some specialist lenders take a more pragmatic approach to cladding issues, considering each application on its merits. While their rates may not be as competitive as mainstream lenders, they can provide a solution when other options are not available.

A mortgage broker who understands the cladding landscape can be invaluable in navigating these options and finding the best solution for your specific circumstances.

Steps to Take If Your Building Has Cladding Issues

If your building is affected by cladding issues, taking proactive steps can help improve your remortgage prospects:

Understand your building's status

Find out whether your building has had an EWS1 assessment and, if so, what rating it received. Contact your freeholder, managing agent, or residents' association for this information. If no assessment has been carried out, ask when one is planned.

Check the remediation timeline

If remediation is needed, find out what the plan and timeline are. Is the building registered for the Building Safety Fund? Has the developer committed to carrying out the work? Having a clear timeline can be helpful when approaching lenders.

Gather documentation

Collect all relevant documentation, including any EWS1 forms, fire risk assessments, remediation plans, building safety case documents, and correspondence about funding. Providing comprehensive documentation to your broker and lender can help speed up the process.

Review your current mortgage

Check when your current deal ends and what rate you will move to. If you are approaching the end of a fixed rate, start exploring your options well in advance so you have time to arrange a product transfer or find an alternative lender.

Contact your existing lender

Even if you would prefer to move to a new lender, check what your existing lender can offer. A product transfer to a better rate with your current lender may be the most practical solution while cladding issues are being resolved.

Engage with your residents' association

If your building has a residents' association or right to manage company, engage actively. Collective action to push for EWS1 assessments, remediation, and communication with lenders can be more effective than individual efforts.

The Future Outlook for Cladding-Affected Properties

The landscape for cladding-affected properties continues to evolve, and there are reasons for cautious optimism.

Progress on remediation:

Remediation work is progressing across the UK, albeit more slowly than many leaseholders would like. As more buildings are remediated and receive satisfactory EWS1 assessments, more properties are becoming mortgageable again.

Evolving lender attitudes:

Lenders' attitudes have become more nuanced over time. Rather than applying blanket restrictions, many are now assessing buildings on a case-by-case basis, considering factors such as the specific fire safety issues, remediation plans, and building height.

Government intervention:

The government continues to push for faster remediation and has introduced various measures to support leaseholders and hold responsible parties to account. The Building Safety Fund, developer remediation contracts, and the cladding safety scheme are all helping to address the issue.

Industry initiatives:

The mortgage and surveying industries have been working together to develop more proportionate approaches to assessing fire safety risk. The revised RICS guidance, which removed the EWS1 requirement for buildings below 11 metres, was a significant step in this direction.

What to do in the meantime:

While waiting for your building's cladding issues to be resolved, focus on what you can control. Keep your mortgage payments up to date, maintain a good credit score, and stay informed about your building's remediation progress. When the time comes to remortgage, you will be in the best possible position to secure a competitive deal.

If you are currently stuck on your lender's SVR because you cannot remortgage, a product transfer may help reduce your monthly payments in the interim. Speak to your lender or a qualified broker to explore your immediate options.