RDC0010
Written evidence submitted by UK Finance
Introduction
UK Finance is the collective voice for the banking and finance industry. Representing more than 250 firms, we act to enhance competitiveness, support customers and facilitate innovation.
We welcome the opportunity to submit written evidence on cladding remediation to the Public Accounts Committee.
Key points
1) Mortgage lenders want and need to ensure that home buyers are purchasing a property they can afford, is secure, and maintains its value. Part of the home-buying and most remortgaging processes will include an independent valuation of the property that considers costs associated with cladding.
2) It is clear many buildings with cladding on them will need remediation work to ensure that they are safe. The identification of these buildings, what work is required, when it will be carried out and how it will be funded needs to be taken into account in the valuation process.
3) UK Finance has worked, and continues to work, with RICS and a wide range of other stakeholders on the process for the valuation of properties in buildings with cladding on them to reflect current information available on the risks associated with certain types of materials.
Mortgage valuations
- 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 or less than market value by an independent valuer using a reliable standard, such as those developed by the International Valuation Standards Committee, the European Group of Valuers’ Associations or the Royal Institution of Chartered Surveyors (RICS). In the UK most independent mortgage valuers will use the standard developed by RICS.
- Lenders would expect valuers acting on their behalf to advise them on any factors revealed during the inspection that are likely to materially affect a property’s value and highlight any serious disrepair or potential hazards. Lenders would also expect valuers to draw attention to any potential maintenance costs that a homeowner may have to contribute to which could affect the value of the property.
- It would generally be expected that serious concerns about fire safety or potential remediation work required to ensure fire safety would be included in a valuation report. If a valuer does not have the information needed to provide an accurate valuation for mortgage purposes, it may suggest that additional information or expert advice is sought.
Cladding on high-rise buildings
- 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 on them – to be used by valuers, lenders, building owners and fire safety experts. The new process aimed to resolve issues by ensuring that there is agreement on what evidence is needed and who can provide it. This means that there is consistency about the collection and presentation of information about external wall system.
- 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 Review was developed through extensive consultation with a wide range of stakeholders including fire engineers, lenders, valuers, and other cross industry representatives. Only one assessment is needed for each building and will be valid for five years.
- The process has been helpful and there are cases where buildings have been inspected by an appropriate expert and been found not to need remediation which has led to mortgages going ahead. We anticipate that this will happen more frequently as the system is adopted more widely and become better understood, and as more inspections can be carried out.
- This does not mean that the issues around the valuation of high-rise properties have been entirely resolved, and we continue to work with the government, BSA, RICS, and other stakeholders on the valuation process. In particular, there are plans for the creation of a database of completed EWS1 forms which can be accessed by interested parties to ensure that they are filled in correctly by competent professionals.
- There are also additional factors having an impact on the ability of building owners to provide
EWS1 forms including the number of experts available and challenges within the professional
indemnity insurance market. We are willing to work with government and other stakeholders to help resolve these issues.
Under 18m buildings
- The EWS1 form was 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 has released its consolidated guidance note for the building owners of multi-storey, multi-occupied buildings. This includes those 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 some buildings requiring remediation. We are considering how an industry-wide response to this can be found that will allow valuations to take place on these buildings without the need for intrusive and unnecessary investigations.
Funding remediation work
- The new £1 billion remediation fund was a welcome announcement and will have provided some relief to residents of buildings over 18m that have been assessed as unsafe and in need of remediation. As representatives of mortgage lenders we lack the expertise and data to establish whether the fund will be sufficient for all the buildings which may need remediation but it seems likely that the final costs may be more than £1 billion. This is based on estimates from large building owners, such as Housing Associations, and the experience of increasing costs for the remediation of buildings with ACM cladding.
- The fund does not cover all costs for all buildings and it is possible that this could continue to
cause issues for residents in blocks of flats. The fund does not cover buildings below 18m, which may exclude some buildings in need of urgent remediation; the fund does not cover the inspection of buildings to assess whether they need remediation which could cause a delay in the assessment taking place; and the fund does not cover works needed as a result of remediation, for example where additional safety issues with the building have been identified as a result of the removal of unsafe cladding.
- It is important that mortgage lenders can access information and data about the identification of buildings and progress of remediation. The valuation process has been made more difficult by the difficulty in identifying which blocks have ACM cladding and which of these had funding for remediation in place. Sharing of information would be welcomed.
- It would also be helpful to have more information about the general costs of remediation to help
inform valuers and lenders about the impact remediation has on the value of an individual property.
July 2020
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