Lenders’ cladding commitment needs stakeholder action

The debate around lending on flats that have cladding and building safety issues is often confusing, with people understandably wanting to see swift action to enable the mortgage market to function normally again.

Recently, six of the UK’s largest lenders signed an industry statement committing to lend on flats in mid and high-rise buildings in England requiring essential life-safety works. 

 In doing so, lenders have been able to take into account some significant positive developments: 

  • leaseholders are now protected in law from having to pay to fix unsafe buildings  
  • leaseholders with qualifying leases are protected from cladding costs and any outstanding non-cladding costs will be capped 
  • leaseholders can now self-certify that they are covered by legal cost protections to building owners 
  • the government is delivering schemes to fund the required works, including developer-funded remediation of life-safety defects in buildings for which they are responsible. The government’s Building Safety Fund for high-rise blocks re-opened at the end of July; and a funding scheme for mid-rise blocks is expected.

The commitment shows that lenders are confident in government’s achievements to date that protect leaseholders from these costs and hold responsible developers to account. It also shows that lenders will lend on flats in affected blocks, and that they are working constructively with government and key stakeholders to make sure that this commitment can be delivered.

Three other planned pieces of action are being progressed to enable this. 

 Firstly, the government, the Home Builders Federation (HBF) and developers are close to agreeing a contractual position on the scope and standard of developer-funded remediation to avoid further delay and uncertainty for sellers and buyers. This follows on from the “pledges” given by major developers in England to the Secretary of State. 

 Secondly, the Royal Institution of Chartered Surveyors (RICS) is working to launch a new Valuation Framework for flats in buildings that will be fixed but where works have yet to start. The framework will need information and data provided upfront about when buildings will be fixed in future to give accurate market valuations now.  

 Thirdly, lenders are working with government on the data needed about remediation plans so that this can be provided to support the home purchase process, including valuation and lending in blocks where remediation has not yet begun.  Insurers could also benefit from access to this data to help inform a proportionate approach to insurance risk and pricing for buildings to be remediated.  

 Although these three enablers for lending and valuation are expected soon, lenders support reopening of the market now by taking pragmatic case-by-case decisions based on information available to them.  Customers’ experience of the market and transacting their properties will improve as more information becomes available when building remediation is underway.

For the last five years since the Grenfell tragedy, people affected by building safety issues across England have been awaiting the return of normal conditions for buying and selling their homes. Major lenders are playing their part by working collaboratively with government and others to deliver this.

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