Written evidence submitted by UK Finance [BSB 256]

UK Finance is the collective voice for the banking and finance industry. Representing more than 250 firms across the industry, we act to enhance competitiveness, support customers and facilitate innovation.

We welcome the opportunity to submit written evidence on the draft Building Safety Bill to the Housing, Communities and Local Government Committee and will seek to provide a general view of the Bill as well as answer the specific questions asked.

Summary

Mortgage lenders have a strong interest in building safety and build quality and want to be able to lend responsibly to ensure that mortgage customers are buying safe, good quality homes. The focus on building safety over the last three years has shown that the previous system was fundamentally flawed.  Many buildings assumed to be safe are not, with cladding being a particular issue.

The ban on the use of combustible materials and the government advice for building owners to check cladding and remove it if it is unsafe has caused significant issues with mortgage valuations. It is not possible to see immediately if a building needs remediation so valuers and lenders require further information from the building owner, which is often not available. The problem of paying for remediation, where necessary, has also not been resolved despite the availability of some government funding.

Measures in the draft Building Safety Bill, alongside the Fire Safety Bill and Fire Safety Order consultation, are designed to ensure building safety. It is important that the real-world implications of the proposed measures are considered to avoid unintended consequences - such as those created by the government’s advice notes for building owners. In particular:

• The scope of the Building Safety Regulator must be clearly defined so that low-risk buildings are unequivocally out-of-scope.
• There should be capacity to provide Building Safety Certificates at scale within a short period of time and to make them readily available to homeowners, buyers and mortgage lenders.
• Government should ensure that there are sufficient numbers of trained and qualified people available to carry out the role of Building Safety Managers and Building Inspectors and that they have adequate insurance to enable them to undertake these roles.  We suggest a government-funded training scheme for a period of years could ensure enough qualified individuals.
• As the responsibilities and potential risks involved in becoming an Accountable Person are considerable, due consideration must be given to ensuring that resident-run buildings have an Accountable Person.

UK Finance does not believe that individual flat owners should be held financially responsible for rectifying past failures in ensuring that buildings are safe. The continued confusion about whether individual leaseholders are ultimately responsible for paying for building safety failures, particularly around cladding, is the underlying cause of valuation concerns as it is difficult to assess whether a building needs remedial work and who will pay for it. We suggest the proposed building safety charge in the draft Building Safety Bill might not resolve this situation and needs further consideration.

UK Finance supports the introduction of a New Homes Ombudsman. We want to see good quality homes built, and an ombudsman service will go some way to ensuring this.

Overview

Mortgage lenders have a strong interest in building safety and build quality and want to lend responsibly to ensure that customers buying homes with mortgage finance can be assured they are buying safe, good quality homes and that the mortgage loan has a good underlying asset against it.

The Grenfell Tower fire and subsequent focus on building safety has shown that the previous system of building control was fundamentally flawed, and many buildings assumed to be safe are not. In particular, the extensive use of combustible cladding and other materials on external walls has proved to be unsafe and left many residents unsure if their building is safe or in need of remediation work.

The valuation of individual properties is an important part of the mortgage process. Mortgage lenders have a regulatory requirement to ensure that a property they are lending on is valued at market value by an independent valuer. As we know some buildings are unsafe and need remediation, a valuer must understand if a particular building is affected and what works are needed if it is. If a valuer does not have the information needed to provide an accurate valuation for mortgage purposes, they will need additional information or expert advice, sometimes resulting in a nil or zero valuation being given pending receipt of the required detail.

In the absence of any government mandated way of establishing whether a building meets current government advice, in December 2019 RICS, the Building Societies Association and UK Finance agreed an industry-wide process[1] for the valuation of high-rise properties with cladding. This process aimed to resolve issues by ensuring that there is agreement on what evidence is needed and who can provide it, meaning there is consistency about the collection and presentation of information about cladding. The External Wall Fire Review process requires a fire safety assessment to be conducted by a suitably qualified and competent professional and confirmed using the EWS1 Form. It establishes what material is on the outside of a building and what, if any, remediation work is needed. This delivers assurance for lenders, valuers, residents, buyers and sellers. 

The EWS1 form was specifically designed for the assessment of buildings over 18m and those buildings below 18m where specific concerns existed. Since the launch of the EWS1 form the government released its consolidated guidance note for the building owners of multi-storey, multi-occupied buildings. This unexpectedly, and without consultation, included buildings below 18m. It is clear buildings below 18m will now need to have their external wall systems considered as part of their fire risk assessment and that this could result in more buildings requiring remediation.

Measures in the draft Building Safety Bill, alongside the Fire Safety Bill and Fire Safety Order consultation, are designed to ensure building safety. It is important that the real-world implications of the proposed measures are taken into account, so as to avoid unintended consequences such as those created by the government’s post-Grenfell advice notes for building owners.

Measures in the Bill

Building Safety Regulator

The creation of a Building Safety Regulator should ensure that there is one body responsible for the oversight of building safety in high-risk buildings  The scope of the regulator should be clearly defined from the outset, with clearly defined regulatory actions/ interventions.  This should avoid lenders and others having to second-guess whether buildings are in-scope or what action the regulator might take.  This will be important for individual property owners as increased regulatory oversight could mean increased costs. Currently it is envisaged that buildings over 18m or six storeys will be in-scope of the Building Safety Regulator. There are, however, powers for the Secretary of State to widen the scope to other buildings through secondary legislation.  The circumstances in which this power could be used should be clearly defined up-front. 

Building Assurance Certificate

Under the new regime the Accountable Person for a building will need to obtain a Building Assurance Certificate from the Building Safety Regulator. This is, therefore, likely to become a way for other parties, including buyers, residents, valuers and lenders, to help assess whether a building is ‘safe’ or in need of further work. It is important that there is capacity to provide these certificates quickly at scale to avoid the potential for failure to do impacting on property transactions.  Similarly, we suggest certificates should be available to interested third parties in a set format preferably through a central online portal.  Alternatively, we suggest government should set out what assurances can be provided to owners, buyers, valuers and lenders that buildings are safe and will not require value-affecting works as a result of a failure to receive a Building Assurance Certificate.

Building Safety Manager

The Accountable Person will need to appoint a Building Safety Manager to manage building safety. We understand that this may, but might not always be, the normal managing agent. Government should ensure that there are enough trained and qualified people available to carry out the duties of a Building Safety Manager, and that they have adequate insurance to enable them to do so.

Building inspectors

The Accountable Person will need to ensure that the building is regularly assessed and that fresh assessments are carried out if circumstances warrant. Government should ensure that there are enough trained and qualified people available to carry out inspections and that they have adequate professional indemnity insurance to do so.

Accountable Persons

Accountable Persons have a key role to play in the new regime and it will be important to ensure they can carry out their duties and are willing to do so. While we accept that this should be possible in most cases, particularly where a responsible professional landlord is in place who is willing to take on the role, there may be cases where it does not happen. Where building owners fail to ensure an accountable person is in place, we suggest a system of penalties and measures should enable authorities to step in and assume responsibilities.

We are mindful that government is also keen to see increased leaseholder involvement in the management of their buildings, including a reinvigoration of commonhold. Accordingly, there should be consideration of how best to ensure that resident-run buildings have an Accountable Person.

Provision of information

The new regime should ensure the provision of considerably more information about a building’s safety. This information should be made available to interested parties including residents, purchasers and lenders.  It should be available on request in a standardised, simple and readily accessible format, preferably through a single, centrally operated and controlled online portal.

Costs – building safety charge

UK Finance does not believe that individual flat owners should be held financially responsible for rectifying past failures in ensuring that buildings are safe. The continued confusion about whether individual leaseholders are ultimately responsible for paying for building safety failures, particularly around cladding, is the underlying cause of valuation concerns as it is difficult to assess whether a building needs remedial work and who will pay for it. The current expectation that building owners pay for building safety works without passing costs on to leaseholders, where possible by seeking compensation from the original contractors and/or insurers, is not sustainable. It relies on responsible building owners being willing to fund work themselves or being able to secure compensation from a contractor or insurer or other third party. Government should provide sufficient funding to accelerate and scale-up the remediation of affected buildings.

The proposed building safety charge is unlikely to achieve this. We suggest it could result in providing owners with only minimal additional information about building safety costs and caps those costs at £78k per flat – likely to be more than most can afford.

New Build Ombudsman

UK Finance supports the introduction of a New Homes Ombudsman. We want to see good quality homes built.  An ombudsman service will help to ensure this. It is important that any ombudsman service judges against a set of industry standards that embed the highest standards possible rather than taking the lowest common denominator as a starting point. The ombudsman should be truly independent, with an independent Chair and Board, funded by the home building industry and free for consumers to use.

Consultation Questions

How well does the Bill, as drafted, meet the Government’s own policy intentions?

The Government’s overall policy intention is to improve building and fire safety so that people will be, and will feel, safer in their homes. On this simple measure the Bill is a helpful step that, alongside the Fire Safety Bill and changes to the Regulatory Reform (Fire Safety) Order 2005, should ensure building and fire safety is improved.

Government must, however, take into consideration the unintended consequences of increasing building and fire safety measures and additional actions that must be taken by those accountable. A new system should not be created that cannot be delivered quickly.  Doing so would create further issues in the home-buying and selling market as consumers, mortgage lenders and others question whether buildings are safe and the implications for them if they are not.

Does the draft Bill establish an appropriate scope for the new regulatory system?

The scope of the Bill currently states that only buildings over 18m are in scope but it also provides for the Secretary of State to widen this scope using secondary legislation.

There will need to be clarity on which buildings fall in scope of legislation (and when) well ahead of the bill process. We understand the desire to ensure that experts focus on buildings which are most at-risk initially (i.e. tallest buildings first) and support this. However, we need to understand if the intention is for all or some additional buildings to be brought within the remit of the regulatory system in future. If, for example, the intention is for buildings over 11m to be within the remit of the regulatory system then this should be made clear at the outset.

Will the Bill provide a robust – and realistic – system of accountability for those responsible for building safety? Are the sanctions on those who do not meet their responsibilities strong enough?

The system of accountability in the Bill is robust to the extent that it would result in a named individual being accountable for a building’s safety with clear actions for them to take, overseen by a new regulator.

It is possible that this system might be too onerous in some situations. We are mindful that the government is keen to see increased leaseholder involvement in the management of their buildings, including a reinvigoration of commonhold. As the responsibilities and potential risks involved in becoming an accountable person are considerable, consideration should be given to ensuring that resident-run buildings have an Accountable Person.

It is vital that the government ensures that the actions required by the Bill can be delivered on quickly after it is implemented if they are not to create further issues within the housing market. Creating additional standards for building safety which cannot be met could have an impact on the value of an individual property.

Will the Bill provide strong mechanisms to ensure residents are listened to when they have concerns about their building’s safety?

UK Finance supports mechanisms to ensure that residents have a strong voice on building safety concerns and are listened to. The Bill seems to provide these and this is to be welcomed.

Is the Government right to propose a new Building Safety Charge? Does the bill introduce sufficient protections to ensure that leaseholders do not face excessive charges and that their funds are properly managed?

UK Finance does not believe that individual flat owners should be held financially responsible for rectifying past failures in ensuring that buildings are safe. The continued confusion about whether individual leaseholders are ultimately responsible for paying for building safety failures, particularly around cladding, is the underlying cause of valuation concerns as it is difficult to assess whether a building needs remedial work and who will pay for it. The current situation where building owners are expected to pay for works relating to building safety without passing costs on to leaseholders, where possible by seeking compensation from the original contractors and/or insurers, is not sustainable. It relies on good, responsible building owners being willing to fund work themselves or being able to secure compensation from a contractor or insurer. Government should provide sufficient funding to accelerate the remediation of affected buildings at pace and scale.  The proposed building safety charge is unlikely to achieve this.  We suggest it could result in providing owners with only minimal additional information about building safety costs and caps those costs at £78k per flat – likely to be more than most can afford

Does the Bill improve the product testing regime in a way that will command the full confidence of the sector?

UK Finance does not have a view on this.

Is it right that the new Building Safety Regulator be established under the Health and Safety Executive, and how should it be funded?

The new Building Safety Regulator should be funded by those who caused initial concerns about building safety such as developers and manufacturers of building products. The costs should not fall on homeowners.

Does the Bill present an opportunity to address other building safety issues, such as requirements for sprinkler systems?

UK Finance does not have a view on this.

September 2020

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