Written evidence submitted by Building Societies Association

RDC0009

External Wall System Review Process

Summary

There are challenges with valuing buildings with external cladding, namely that combustible materials cannot be identified by a visual inspection. The External Wall Fire Review Process was designed to address this, by standardising the mortgage valuation on high-rise properties with external wall systems.

There are challenges with the process though. The process cannot address capacity issues or increase the number of Chartered Fire Engineers available to carry it out. Nor can it overcome the challenges of obtaining professional indemnity insurance.

The process was never intended, nor is it able to, address issues around buildings that are found to need remediation work, nor the costs that may be passed onto leaseholders.

Background

As it became clear that non-ACM forms of cladding also presented a significant fire hazard, the Ministry for Housing, Communities & Local Government (MHCLG) issued guidance for building owners on managing the risks of external wall systems with potentially combustible material on tall buildings. Their Advice Note 14 in particular dealt with non-ACM cladding, and a later un-numbered Advice Note addressed issues with balconies. These Advice Notes have since been consolidated in the Advice for Building Owners of Multi-storey, Multi-occupied Residential Buildings document.

Challenges with valuing cladded buildings

The challenge for lenders and the valuers contracted to provide mortgage valuation advice is that the valuer may not be able to identify combustible material through a visual inspection. If they are unable to get the information required from the building owner about the cladding they would need to return a nil valuation. Nil valuation does not mean that the property is worthless in cash terms, rather that it is unsuitable as mortgage security as further information is needed. This has understandably led to frustration and financial difficulty, as some homeowners are currently unable to sell their homes.

The process

Purpose

Before the External Wall Fire Review Process, there was no established industry protocol, acceptable to lenders and valuers, for a building owner to commission an assessment of the fire safety of the cladding and other materials making up the external walls.

The External Wall Fire Review Process form (EWS1) have been designed to standardise the mortgage valuation on high-rise properties with external wall systems.

The Review was designed to address the issue of valuers and lenders being able to access information about the fire safety nature of cladding.

Development of the process

The Building Societies Association (BSA), the Royal Institute of Chartered Surveyors (RICS) and UK Finance were all involved in designing the process. Additional input was also sought from Chartered Fire Engineers, developers, managing agents, building owners and the Ministry of Housing, Communities and Local Government (MHCLG).

The Process

The External Wall Fire Review requires a fire safety assessment to be conducted by a suitably qualified and competent professional. Only one assessment is needed for each building and this will be valid for five years. The process has been supported by the Association of Residential Managing Agents and Institute of Residential Property Management.

Since the Review was launched in late 2019, buildings are receiving signed EWS1 forms, allowing mortgages to proceed. As the process is more widely adopted and incorporated into the property sector, it will continue to improve access to mortgage finance for leaseholders. While we cannot currently track the numbers of signed forms, we are working with Government on a project led by RICS and the Fire Industry Association to establish a central portal of signed EWS1 forms. This should also have the benefit of enabling lenders and valuers to have an overview of buildings that have received EWS1 approval, and have confidence that the form is genuine and signed by an appropriate professional, reducing the risk of fraud.

Challenges

While the EWS1 form is helping some people, there are challenges with it. For example, the process itself cannot address capacity issues among Chartered Fire Engineers and other relevant professionals. There is a significant backlog of complex cases to address.

There are also challenges in the Professional Indemnity insurance sector, which affects the ability of professionals to work on fire safety issues. This is due to nervousness about providing cover. The Government is working to address these issues.

Assessing buildings of any height

Since the launch of the External Wall Fire Review process, there has been a consolidated advice note published by Government. This advice note contains phrasing not seen in the preceding advice notes mentioned above:

Following recent events, the Expert Panel has significant concerns that consideration is not routinely given to Requirement B4 of Schedule 1 to the Building Regulations (on external walls resisting the spread of fire), particularly in circumstances where the guidance in Approved Document B is less specific. Requirement B4 is clear and requires that “the external walls of the building shall adequately resist the spread of fire over the walls and from one building to another, having regard to the height, use and location of the building.” The need to assess and manage the risk of external fire spread applies to buildings of any height.’ (MHCLG emphasis)

This new phrasing has led to concerns across the property sector that some form of assessment of cladding may be necessary for all multi-occupancy, multi-storey residential buildings, regardless of height, rather than the previous focus on tall buildings with their particular risks. The BSA is working with RICS and UK Finance to reach an industry solution that would not require all multi-occupancy, multi-storey buildings with cladding to go through the Review process in order to be suitable for mortgage lending.  Given current capacity issues in delivering the current scope of the process for tall buildings, this would have a significant impact on housing market transaction numbers and speed, adversely affecting the overall mobility of the housing market.

For lenders and valuers to agree an approach for lower-storey buildings without assessing cladding does come with risks. Such an approach would be based on an assumption that certain types of buildings would be less expensive to remediate should this be required. This assumption is yet to be tested at scale. In the event that a lender does provide a mortgage on a property in a building that subsequently requires expensive remediation works, this could open lenders and valuers up to legal challenge from affected homeowners.

July 2020

 

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