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The cladding crisis – what is the latest?

  1. 18 February 2021
  2. By Jeremy Greer

Reallymoving takes a look at the latest announcements surrounding the cladding crisis, including new government funding and a controversial loan system, and the industry reaction to it.

 



Alongside the leasehold scandal, the UK’s cladding crisis, which came to light after the Grenfell Tower tragedy in June 2017, has been one of the most talked-about issues in the property industry.

There is a huge amount of crossover between the two, with many leaseholders living in flats and apartments with dangerous cladding, leaving their homes both potentially unsafe and virtually unsellable.

A number of campaign groups have been created to apply pressure on the government, with the End Our Cladding Scandal perhaps the best-known – while MPs from across the political divide have applied their own pressure on behalf of their constituents, many of whom are living in these unsafe buildings.

There has also been huge media coverage surrounding the crisis, with many stories about angry, frustrated homeowners facing spiraling insurance costs, fees for waking watches and huge difficulties in selling as a result of homes that have virtually no value while their safety is uncertain. As you’d expect, lenders won’t lend against these homes, surveyors won’t survey them, and buyers don’t want to purchase a home that might have dangerous cladding.

The government has faced huge criticism for its slow and somewhat cumbersome approach to this issue, with many still living in fear three-and-a-half years after Grenfell. However, the Housing Secretary Robert Jenrick did recently make announcements to try and quell the growing anger over the cladding crisis.

Here, we explore what was announced, the responses from the industry and what buyers should do if they’re trying to purchase a property that requires an EWS1 form.

What was announced?

In the face of growing pressure, Jenrick announced an additional £3.5 billion on top of an existing £1.6 billion commitment the government had previously made to resolve the cladding crisis. This combined sum is directed at removing or renovating the cladding on tower blocks more than 18 metres in height.
Additionally, there will be a development tax to be introduced next year which will aim to bring in an additional £2 billion over 10 years, to be spent on long-term cladding remedial work.

Blocks below 18 metres in height, though, will not have fully-funded remedial work, the government revealed, with the leaseholders who own properties within them instead being offered loans. The government has insisted that repayments on the loans will be capped at a maximum of £50 per month.

Later, the government provided more details on two new taxes which will generate funds to address the cladding issue on high-rise tower blocks and lower-sized apartment blocks.

To begin with, there will be a so-called Gateway 2 developer levy, a targeted tax applied when developers seek permission to develop certain high-rise buildings in England. The Ministry of Housing, Communities and Local Government (MHCLG) has not yet outlined the criteria of buildings to which this levy will apply.

Secondly, there will be the new development tax, as mentioned above, for the entire UK residential property development sector.

“The tax will ensure that the largest property developers make a fair contribution to the remediation programme, reflecting the benefit they will derive from restoring confidence to the UK housing market. The government will consult on the policy design in due course,” an MHCLG statement read.

What’s more, the government insisted it will ‘protect future generations from similar mistakes’ in the design and cladding of tower blocks. It will aim to achieve this by bringing forward legislation this year to tighten the regulation of building safety and to review the construction products regime to prevent malpractice from occurring again.

“Remedying the failures of building safety cannot just be a responsibility for taxpayers. That is why we will also be introducing a levy and tax on developers to contribute to righting the wrongs of the past,” Jenrick said.

“These measures will provide certainty to residents and lenders, boosting the housing market, reinstating the value of properties and getting buying and selling homes back on track. We are working with lenders and surveyors to make this happen.”

He called it a ‘landmark intervention’ which will make homes safer and ‘free those who did the right thing – saving for years to get on the property ladder – to enjoy the homes in which they have invested so much’.

What was the reaction?

The reaction to this announcement from both those in the property industry and campaigners was generally negative.

Stephen McPartland, the Conservative MP for Stevenage and a vocal critic of government inaction over the cladding crisis, tweeted his despair during Jenrick’s announcement. “The statement is all smoke and mirrors. He is very careful to just state cladding. No mention of fire safety defects, Waking Watches or Excessive Insurance Premiums which are often the main costs for millions of leaseholders.”

Andrew Southern, chairman of property development firm Southern Grove, also gave the proposals very short shrift. “Taxing developers, most of whom weren’t responsible for the cladding crisis, is just laughable,” he said. 

He added: “This sort of regressive tax will only stagnate housebuilding, which is the exact opposite of what the UK needs. By applying it only to the largest developers building the tallest buildings, it will also disincentivise creation of housing in the high-density areas that are badly in need of new stock.”

Criticism also came regarding the overall amount of money pledged – which some say is nowhere near enough to solve the problem – and especially the controversial loans system for the affected lower-rise buildings. 

“The government needs to allocate funds to remove cladding and fire safety defects from all blocks irrespective of height,” Dominic Agace, chief executive of estate agency Winkworth, commented.

“Most important of all, homeowners in lower-rise blocks should not have to bear any of the costs to make their homes safe. A loan scheme will mean these homeowners will be shackled with another financial burden, which could make it extremely difficult to sell the property.”

Meanwhile, Jonathan Frankel, head of the property litigation department at Cavendish Legal Group, said the £3.5 billion announced is completely insufficient to deal with even a fraction of the blocks up and down the country where repairs are needed.

“The fact that it only applies to buildings over 18 metres will cause even more uncertainty for those residents and leaseholders living in lower-rise blocks where they feel insecure and unsafe,” he continued. “It may be considered a lower risk, but it’s a risk nonetheless which will impact the saleability of their property.”

Campaigner, Paul Afshar, of the End Our Cladding Scandal campaign, said: “Loans longer than mortgage terms for millions and not even enough to cover the cost of making the buildings that the government consider most high-risk safe. Taxpayers and leaseholders are left to foot the bill for billions of pounds while the largest developers – who have made over £10 billion in profit since the Grenfell fire – are let off lightly.” 

The Leasehold Knowledge Partnership – one of the main voices for leasehold reform – argued: “Leaseholders in tens of thousands of buildings less than 18 metres have been told they will pay 100% of the costs of fixing others’ mistakes. Leaseholders in buildings above 18 metres may still face ruinous costs of fixing non-cladding defects.”

Other’s welcomed the governments new initiative, though they were measured in their praise.

Nicola Kravitz, of law firm Memery Crystal, said: “We welcome the news today that the government is pledging an extra £3.5bn to remove unsafe cladding from high-rise buildings over 18 metres at no cost to homeowners, and that low interest loans will be available for residents of buildings under 18 metres to cover the costs of recladding but await further details to see if these proposals go far enough and the proposed timescales to roll out these measures.”

Peter Johnson, chairman of cladding supplier Vivalda Group, said: “While I broadly welcome this as a step in the right direction, this figure still falls a long way short of the £15bn fund that the select committee recommended to fix unsafe cladding on all high-rise buildings. Nevertheless, there remain challenges to implement such a plan.
 
The Association of Residential Managing Agents estimates that some 274,000 flats have dangerous cladding in the highest blocks, with this figure rising much, much higher when low-rise units are included.

The EWS1 form – what do you need to know?

Following the Grenfell Tower fire in June 2017, there was a focus on removing aluminium composite material (ACM) from buildings over 18 metres, with this focus broadened over time to take in other types of combustible cladding.

In 2019, mortgage lenders started to seek assurances about the safety of external wall systems as a condition of approving mortgage applications. In some instances, surveyors acting for lenders formed the opinion that flats in blocks without a certificate showing compliance with Advice Note 14 had a value of £0, or significantly less than the asking price. As a result, a rising number of mortgage applications were rejected, and sales began to fall through.

To respond to this, the Royal Institution of Chartered Surveyors (RICS) led a cross-industry working group to consider best practice in the reporting and valuation of tall buildings within the secured lending arena, with a view to agreeing a ‘new standardised process’.  

In December 2019, the EWS1 process was agreed by the industry. RICS describes it as an ‘industry-wide valuation process which will help people buy and sell homes and re-mortgage in buildings above 18 metres (six storeys)’.

Following its introduction, flat owners looking to sell or re-mortgage their homes discovered that lenders asked for an EWS1 form. Such forms are not a statutory requirement, but lenders may refuse a mortgage application where one cannot be produced as a purely commercial decision. 

The EWS process involves a fire safety assessment by a suitably qualified professional who completes the EWS1 form. You can discover more on the RICS website

EWS1 forms are valid for five years, but where buildings are altered a new form may be needed. If you are looking to buy a home that needs, but doesn’t yet have, an ESW1 form, you could face difficulties in getting a lender to lend to you.

You can find out more about the ESW process, and how you could be affected, on the House of Commons Library. There is currently a shortage of experts to carry out assessments and complete EWS1 forms, which is causing further problems. A government announcement in November last year outlined funding of almost £700,000 ‘to train more assessors, speeding up the valuation process for homeowners in cases where an EWS1 form is required’. 

The training is being delivered by RICS as of January 2021 and is anticipated to train 2,000 additional assessors within six months. However, this could slow down the process of those homes requiring an ESW1 form to sell receiving one, which in turn could hamper buyers. If you are thinking about buying a home, but are unsure about the cladding or other issues, you may want to think again, particularly if a qualified expert hasn’t yet declared it safe.

As many can attest to, purchasing a home in a building with unsafe cladding can cause no end of problems. So it’s important that you do thorough research beforehand.   
 
 
 

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