Cover function: are you up to it? The last to rent

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The lease industry has always been an obscure part of the real estate market, with tenants frequently complaining about high service charges, escalating ground rents, unscrupulous landlords and the exorbitant costs of lease extensions.

Yet to date, nothing has rocked the lease industry as much as the siding scandal. The fallout from the Grenfell Tower fire has seen thousands of tenants receive five- and six-figure bills to remove flammable coatings from their buildings and correct historic fire safety flaws.

Invoices caused many apartments to depreciate as owners were unable to remortgage or sell.

Government siding actions, although a step in the right direction, do not go far enough

Maxine Burton in Leeds has been billed for £ 119,000 to pay for identified fire safety flaws in her building. She fears that if she does not pay, the free landlord will lose her lease and take back possession of her apartment. Beth Pritchard in Southwark is in a similar situation after receiving an invoice for £ 85,000. She says she feels sick and can’t sleep. Sophie Bichener has been cited for £ 202,000 to repair her apartment building in Stevenage – not far from the £ 230,000 she originally paid for her house.

These are only three tenants concerned who told their story to the press or on social networks. There are thousands more.

So far, after much debate, the government has put in place a building security program to fund high-rise building security, but the remediation work is complex and expensive. The total cost of fire safety remediation work on all affected blocks has been estimated at £ 15bn, but government funding announced so far is just £ 5.1bn.

Who should pay?

The question of who should pay for the necessary works is at the forefront of the debate over how quickly repairs can be made, as are the financial implications for residents.

Tenants believe developers and builders should pay, but the government has yet to introduce legislation that would require them to do so.

Lease reform has been part of the government’s roadmap for some time

Jeremy Raj, National Head of Residential Real Estate, Irwin Mitchell, says: “The government measures, while a step in the right direction, do not go far enough.

“If the upgrade is about anything, it’s about making sure homeowners up and down the country are treated fairly and allowed to live safely in their own homes without fear of being caught. load by much of the repair and “wake-up” watch costs, as they have largely been so far; that the real culprits be brought to justice; and that funds be made available for remediation in the interim.

Ray of hope?

Successive housing secretaries haven’t managed to make much headway with the siding – or broader lease – issues, but tenants have been given some hope by new housing secretary Michael Gove, who replaced Robert Jenrick in Prime Minister Boris Johnson’s cabinet reshuffle in September.

Gove’s appointment came just weeks after BBC Newsnight devoted an entire program to the building safety crisis – but failed to persuade a single minister or government spokesperson to attend.

Lenders still take a belt and suspenders approach to EWS1 forms

Gove said the government has a responsibility to help tenants pay the costs of siding, describing residents as “innocent parties.” He said plans to force apartment owners to take out loans to pay for the works would be put on hold, and called the 24-hour fire patrol requirement “a scam.”

In addition to huge bills for siding remediation, many tenants are faced with monthly bills for sleepovers, skyrocketing insurance premiums and difficulties with mortgages.

Mortgage lenders have, of course, become cautious about lending on high-rise apartments, especially when the building is covered with siding or other fire safety flaws have been identified. Their concerns led UK Finance, the Building Societies Association and the Royal Institution of Chartered Surveyors (Rics) to collaborate to create the External Wall Survey – EWS1 – in December 2019. At one point, this form had to be completed by a surveyor qualified to allow a mortgage to be approved on any property in a tower block.

EWS1 Forms

As a result of more research and a government guideline released in July 2021, in theory, EWS1 forms are now needed for mortgage purposes for apartments only in buildings over 18m in height.

But John Charcol’s technical director of mortgages, Nicholas Mendes, said that change doesn’t appear to have been passed on by Rics to appraisers.

The main concern of lenders regarding land rent is the effect on the marketability of the property.

He says, “The lenders are, as usual, responsible for this because they educate the appraisers, but it’s more likely that it’s Rics’ fault. This is because lenders trust the professional appraisal the appraiser gives them and appraisers take inspiration from Rics. But some lenders may have issued instructions that don’t help.

Altura Mortgage Finance Managing Director Rob Gill also sees lenders requesting an EWS1 form in cases where a form is not required.

He says: “Lenders and their surveyors continue to take a ‘belt and suspenders’ approach to EWS1 forms. They tend to demand them if there is any doubt that it might be necessary.

“On the other hand, builders and developers may be overly optimistic in their assessment of the need for an EWS1 form. We have seen examples where a builder has categorically stated that an EWS1 is not necessary, even to the point of providing misleading answers to clear questions from the lender, only for the expert to confirm that it is.

“This is extremely frustrating for the borrower and can cause significant delays while the builder makes arrangements. “

Lenders are, as usual, blamed for this because they educate appraisers, but it’s more likely Rics’ fault.

According to Mark Harris, managing director of SPF Private Clients, in some cases it is still possible to get a mortgage when there is an element of siding on a property.

“After the fire risk assessment and the completion of EWS1, the qualified professional will give the block a rating. A1, A2 and B1 are normally acceptable ratings for the lender and confirm that no repair work is required, ”he explains.

However, tenants who have received or expect to receive a bill for the siding remediation are unlikely to sell their apartment, even if mortgage lenders play the game. Any buyer would be wary of purchasing a home. property where it was clear that there was a significant demand for cash along the way.

As a result, many tenants are trapped in their homes and are unable to sell. By default, they are also unable to continue with their lives in terms of changing jobs, separating from an ex-spouse, having children, or moving abroad.

Meanwhile, some experts are increasingly questioning whether mortgage lenders could go bankrupt due to the coatings crisis. The Bank of England’s Prudential Regulation Authority is examining the extent of lenders’ exposure to potentially dangerous leasehold apartments.

The move comes after MPs were warned earlier this year that mortgage lenders could end up seeing more delinquent borrowers if people were unable to pay off their mortgages due to the costs of the remediation works of their blocks.

Rescue land rental

Amid the gloom, the past few months have also seen positive news for tenants. Before the siding scandal, the big problem with the lease was ground rents. Developers such as Bellway, Countryside Properties, Persimmon and Taylor Wimpey have sold homes on long-term leases, rather than freehold, and have recorded increasing ground rents in those leases.

Builders and developers may be overly optimistic in their assessment of the need for an EWS1 form

Ground rents for new homes typically started at £ 250 or £ 500 a year, but periodically doubled or increased with RPI inflation. These increases quickly made a property unaffordable for its owner, and therefore non-mortgage and difficult to sell.

As transfer agents recommended by developers often failed to explain the implications of land rent clauses, many tenants felt they had been mis-sold. Meanwhile, freehold properties in people’s homes have been quietly sold to investors, rather than being offered to tenants as promised in the sale process.

In September, the Autorité de la concurrence et des marchés finally cracked down on one of the biggest perpetrators of lease abuses: Countryside Properties. The regulator forced the developer to remove the doubling of land rental conditions, even in leases where he had sold in full ownership.

This means ground rents designed to double every 10 or 15 years will no longer increase but will stay at the amount charged when customers first bought their home.

Some lenders may have issued instructions that do not help

Harris says, “The main concern of lenders is the effect on the marketability of the property. Certain conditions, such as land rent greater than or equal to 0.5% of the property’s value, will cause most lenders to drop.

“Unfortunately, any problem like this is normally highlighted later in the mortgage process after the appraisal or during legal work.

“Reform of leases, including land rents, has been part of the government’s roadmap for some time, with future legislation capping the treatment of land rents at 0.1% of the freehold value. “

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