Mortgage on flats with cladding: important update for home buyers and leaseholders

Six leading high street lenders have now given the green light to offering mortgages on flats with problem cladding. The new policy, which became effective on 9th January 2023, enables mortgage lending on flats with unsafe cladding or other features that present a fire risk.

Why is this policy change important?

It’s an important step forward for homebuyers who need to raise mortgages on flats with cladding issues. For many years, Londoners living in certain high-rise blocks have been unable to sell or remortgage their properties. These unfortunate leaseholders have also faced high costs for carrying out remedial work.

The situation arose after the Grenfell Tower fire of 2017 when 72 Londoners lost their lives because unsafe cladding materials caused the flames to spread more rapidly.

Following the disaster, lenders withdrew mortgage provision for buildings with known fire safety risks. This is the first time in many years that lenders have been able to offer mortgages on properties in buildings where remedial work is yet to be completed.

How did the problem start?

Prior to the Grenfell Tower fire, there was relatively poor enforcement of building rules regarding the use of unsafe materials. Government guidelines even permitted the use of combustible panels in certain circumstances.

Up to now, lenders have been unable to offer mortgages because of the difficulty in valuing affected properties. However, late last year, the Royal Institution of Chartered Surveyors (RICS) issued valuation guidance to banks in order to bring “clarity and confidence” to the market. RICS will now instruct valuers on how to assess timelines and funding sources for remediation work when they draw up a cladding report for mortgage purposes. Valuers will receive training from RICS experts to ensure they take a consistent approach across all property types.

How can leaseholders benefit from these changes?

Mortgages can now be made available for properties where there is evidence that a remediation plan will be carried out, or where leaseholders have legal protections in place.

This will allow some owners of apartments in buildings over 11 metres in height to finally move home. Buyers can feel confident that plans are in place to remove the risks that have been identified. But sellers should be aware that the prospect of disruptive remedial works may affect the amount that buyers will be willing to pay.

Which banks are involved?

NatWest, Nationwide, HSBC, Santander, Barclays and Lloyds are currently offering mortgages for properties that meet the RICS guidelines. Most of these banks have said that filling out an external wall safety form (EWS1) may not be necessary. However, mortgage applicants will need to produce evidence that protections have been secured or that funding for remedial work has been raised.

If you want to sell a property in a building with remedial plans or required protections in place, don’t hesitate to get in touch. As an independent, family-run estate agent, we can offer a truly personal service: and we’ll always go the extra mile to help you find a buyer.