The cladding issue
Since the Grenfell tragedy cladding has been in the spotlight as the next major danger, presenting a fire risk to high rise properties.
I am not an expert in the impact or danger of cladding (whatever form it takes, albeit ACM – Aluminium Composite Material appears to be the main concern), but I can see that it will become the next item on property surveys, especially for buy to let mortgages on properties over a certain height.
Property Week reported that;
‘remediation work has started on 114 of the 159 social housing blocks exceeding 18m in height that are in England, managed by local authorities or housing associations and failed fire safety tests. Work had been completed on 13 buildings as of 12 July this year’
The key part of this is that buildings below this height or under private ownership are largely an unknown quantity. If you add in the number or permitted development projects that have seen commercial units changed to residential then the actual risk is still largely unknown.
Like asbestos, there is a risk that may or may not require remedial works. At the moment asbestos can be highlighted on a survey with recommendations, on this basis it is reasonable to expect cladding to follow.
Why lenders are concerned
The bottom line of lender valuations and property surveys is to ensure the security covers the risk and that the security has suitable longevity to retain its value beyond the loan period. There is a risk that good security can go bad (properties can become valueless) and this is where the lender concern comes from.
The biggest concern is over liability. Leaseholders have a responsibility for upkeep and cladding work could be costly. Anyone who has ever owned a leasehold property where works need undertaking will know how challenging it can be to get everyone to pay, this liability can shift to the lender if the leaseholder defaults and they want to retain their security. There is also a question about the ethics of knowingly allowing a landlord to let a property that could be a fire risk, for most lenders the PR risk trumps the financial.
For landlords looking to purchase properties where cladding could be an issue, whether justified or not, or where portfolios include these units with mortgages falling due in next few years then it could be worthwhile looking at options earlier rather than later. Whilst the cost or remedial works won’t go away, the ease of remortgaging is probably better in the short term than a few years down the line.
If you want to discuss options or have any questions about mortgaging investment property then get in touch.
By Dave Farmer