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Feature: Taking Ownership – the future for high-rise mortgage lending

The implications for the mortgage industry of potential new building regulations and fire safety checks in the wake of the Grenfell fire


The mortgage market is experiencing the first wave of ramifications from the tragic Grenfell Tower fire in June, which, according to police, left 71 people dead.

Brokers and valuers have told of additional fire safety checks and requirements, which could limit the availability of mortgages or slow down the application process.

High-rise buildings — both privately and council run — and properties with other characteristics similar to those of the west London tower block will naturally be most in the spotlight, particularly those with cladding. However, they are not the only properties that could be subject to extra checks; people buying homes in smaller, privately owned blocks have already encountered complications resulting from the extra scrutiny.

Whatever emerges from the Grenfell reviews will lead to wholesale changes in the building regulations regime

Lenders state that they are working with the authorities to ensure their processes are fit for purpose and will accord with any new findings that come from the various ongoing investigations into the Grenfell blaze.

So far, banks and building societies have not significantly altered their criteria to accommodate the risks. However, given the mood music, there is a greater awareness among all parts of the homebuilding and -buying chain of the need to give more assurances on fire safety.

Immediate reactions

Nevertheless, while the market has become far more conscious of the dangers posed by fire, many believe that only when the official probes have concluded will there be any big-ticket overhaul of lending criteria or regulations.

Trinity Financial product and communications director Aaron Strutt says: “There haven’t been many broker notes sent by lenders explaining additional requirements. However, they will certainly be assessing building and valuers’ reports a lot more closely before they agree to lend.”

According to John Charcol senior technical director Ray Boulger, “valuers are now asked to provide additional information on cladding”. There are also reported instances of extra fire safety checks being required.

London & Country associate director David Hollingworth recalls a recent incident where fire safety was mentioned by a lender as a potential blocker on a case. Although the lender later retracted the suggestion, the example shows how such precautions are beginning to enter lenders’ psyche.

Another broker, who wishes to remain anonymous, told Mortgage Strategy how a client had struggled to produce a fire regulations certificate that their prospective lender required, so the broker had been forced to take the case elsewhere.

Although this is further evidence of borrowers having to jump through more hoops, it also demonstrates that not all lenders’ policies are the same.

New-build delays

Meanwhile, there are worries that extra fire safety scrutiny could cause delays for new-build purchases, with borrowers forced to wait until the builder had received safety clearance from the authorities.

Property Financial Management mortgage and insurance broker Chris Dixon describes a recent case in which a client, who was trying to get a mortgage for a new-build, was told by the developer that fire checks by the Fire Brigade could take weeks, and the sale could go through only when they were complete.

As the mortgage application process had begun, Dixon feared his client’s offer might expire before the fire checks were carried out. Indeed, the developer acknowledged the problem and offered to return the buyer’s deposit, but both parties faced the disappointment of a cancelled purchase.

Mortgage Strategy has seen a letter from the developer’s solicitor to the client’s solicitor, which states: “The Fire Brigade has indicated further works required to the flats, we suspect following the Grenfell Tower tragedy, and it may be some weeks before the works are completed and the completion certificate issued. Our clients will understand if your clients wish to withdraw from the transaction and will refund their reservation deposit.”

Dixon adds: “I don’t know if it was because the Fire Brigade had a backlog or because it needed to make extra checks, but you wonder how widespread this is.”

Lenders will certainly be assessing building and valuers’ reports a lot more closely before they agree to lend

Of course, any requirement for extra fire safety checks will apply not just to new properties but also to existing homes, which could delay anyone buying a second-hand home and those remortgaging in certain buildings.

Furthermore, Dixon’s case relates to a three-storey, privately owned block of just a few flats, which bears little resemblance to Grenfell Tower. High rises are not the only building type under the safety-check spotlight.

Yet it is large buildings that will attract most attention. There is no official definition of a high rise, although Rics, the trade body for surveyors, defines those that are currently subject to the most scrutiny as buildings over 18m high.

Of course, as many have pointed out, the top priority emanating from the Grenfell tragedy is the prevention of a similar event, so any problems in the mortgage world that may result from increased safety checks could be deemed insignificant in the scheme of things.

It is clear that the authorities will be keeping a close eye on builders, and on the people and firms that operate blocks of flats, to ensure they adhere to fire safety rules.

The Department for Communities & Local Government has already provided a raft of fire safety briefing notes for building owners since the Grenfell disaster. As well as giving advice on making structures and interiors fire safe, the briefings stress the importance of annual fire safety assessments, of guaranteeing access for firefighters in an emergency, and of engaging with commercial premises owners to ensure they do not pose a risk.

Lending criteria

On the mortgage front, the UK’s two largest lenders, Lloyds Banking Group and Nationwide Building Society, both told Mortgage Strategy they had not altered any criteria around fire safety and cladding on blocks of flats since the summer disaster.

Valuers are now asked to provide additional information on cladding

Nationwide points out that for all multi-storey flats it asks valuers to use discretion to check the property is safe for occupation, which it also did before the Grenfell fire.

Bernard Clarke, spokesman for lender trade body UK Finance, says: “We are engaging with members — including commercial funders of social housing — and external stakeholders such as valuers, Rics and the DCLG in the aftermath of the fire, which has raised questions about the safety of high-rise buildings in relation to fire risk.

“Lenders will consider the advice of the mortgage valuer in deciding whether to lend and many lenders will have existing policies around lending on properties within high-rise buildings.”

Rics says lenders are indeed among various groups that have worries about the safety of certain tower blocks. In a statement to its members in October it said: “There is clearly significant and understandable concern with high-rise residential developments — in particular, regarding the existence and effectiveness of fire prevention measures and containment. This is not limited to residential schemes, with some high-rise student accommodation, care homes, hotels and mixed-use properties also in focus.

“More specific concerns may arise from owners, occupiers, investors, lenders, insurers and other market participants regarding the possible impact of the [Grenfell] fire on the value of properties that could be seen to be constructed in a similar way to Grenfell Tower. Where there is considered to be a material uncertainty around a valuation, this should be clearly articulated. Members should also consider the impact of any potential difficulty in resale or renting.”

Earlier in the year, in July, Rics released specific advice to valuers, which has not changed since. While much public attention has focused on the risks from cladding — with many believing the type used on Grenfell Tower helped the fire to spread — Rics insisted in its briefing that there were other issues to consider.

Its advice stated: “Rics recommends a holistic approach to the whole building and not just the cladding. The professional should carry out a thorough fire-risk assessment.

“The construction that is behind the cladding will also need to be assessed, in particular the fire-stopping and cavity barriers.”

Official inquiries

Despite the increase in the market’s awareness of the need to double-check fire safety standards, perhaps the main reason why there have been no major changes in criteria, nor any formal lender communications to brokers and valuers, is that the official investigations into the cause of the Grenfell disaster are still ongoing.

The independent public inquiry set up by Prime Minister Theresa May is likely to receive the most attention but is at an early stage having been given its remit only in mid-August, and been opened in mid-September.

While there has been plenty of media and public speculation on the cause of the fire, the inquiry’s principal role is to answer that question definitively and make recommendations to prevent such a disaster happening again. Its chair, retired judge Sir Martin Moore-Bick, said he hoped to produce an interim report by Easter 2018 but it was too soon to predict when the process would be concluded.

Other probes are also under way including an independent review of building regulations and fire safety, while the police are still investigating whether criminal activity led to the massive blaze.

Key mortgage and housing industry figures say the outcome of the various investigations will be key to any bigger changes to how the markets operate when dealing with similar properties to Grenfell.

“The ramifications of the Grenfell disaster are bound to be far-reaching,” insists Hollingworth. “Lenders have so far not reacted by imposing a raft of criteria changes but I am sure they will be monitoring the outcome of any inquiry.

“This poses serious questions for those valuing property and I’d expect lenders to work with their valuation partners and Rics before making any changes in lending policy.”

Home Builders Federation chairman Stewart Baseley adds: “Whatever emerges from the reviews currently under way will lead to wholesale changes in the building regulations regime under which we operate.”

Public perception

Changes in regulation or lending criteria are not the only possible outcome for the mortgage and housing market triggered by the Grenfell Tower fire. Public perception may create market distortions, even where an expert has assessed as safe a particular block of flats.

A buyer may ultimately favour a property without cladding over one with it, or a property fitted with a sprinkler system over one without, simply because that feature, or its absence, makes them feel safer. That could hit the price of some property types if demand fell as a result, which would have a knock-on effect on lenders. They could be deterred from lending on such homes if they deemed them difficult to sell following repossession.

Many banks and building societies have long been nervous about lending on high-rise or local authority-run blocks, partly because these are sometimes regarded as less desirable. Cherry Mortgage & Finance broker Matthew Fleming-Duffy says: “Many lenders will not lend on blocks over four or five storeys; and, while some will lend on blocks with more floors, they will require that those properties have a lift.

“Ex-local authority flats pose a particular problem for potential buyers as many lenders lend only on blocks where the majority of units are privately owned. Additionally, some lenders will lend on taller buildings only if they are located in major cities, particularly London.”

I am sure lenders will be monitoring the outcome of any inquiry

He continues: “The most important piece of the mortgage approval puzzle is the surveyor and the comments they make regarding the property’s mortgage-ability and sale-ability.

“In this respect, adverse comments relating to a property are becoming a key issue as we are seeing a more distinct disconnect between surveyors, estate agents and the evolving mortgage marketplace.”

No going back

The upshot for brokers and borrowers in the wake of Grenfell is that more fire safety checks will have to take place when someone buys or remortgages any type of flat. This will be the case even before the results of the various inquiries are known, while those in turn may produce even tighter controls or tougher lending criteria further down the line.

Hollingworth reiterates the well-known assertion in broker circles that, whenever the choice of lender is limited, a good mortgage intermediary comes into their own.

He adds, however: “Even then the valuation will be the true test, and the valuer’s comments will be critical in deciding whether the lender gives a thumbs-up.”

At the time of going to press, secretary of state for communities & local government Sajid Javid announced the setting-up of an independent expert advisory panel for fire and building safety following the Grenfell disaster.


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