You are viewing 1 of your 1 free articles
Lenders introduce legal clauses preventing tower blocks being used as security on housing association loans
Lenders now require social landlords to agree to legal clauses that state high-rise buildings cannot be used as security for loans, Inside Housing can reveal.
With the nationwide building safety crisis yet to be resolved, lenders are asking for External Wall System 1 (EWS) forms on buildings or refusing them altogether as loan security for fear of them becoming devalued if fire safety works are required.
Inside Housing has spoken to lawyers who have outlined the issues facing housing associations in this area, as fire safety defects have been discovered on thousands of properties in the wake of the Grenfell Tower tragedy.
Saghar Roya, a partner specialising in securitisation at Devonshires, said she has seen deals where “lenders have requested the loan documentation included a ‘condition precedent’ stipulating that any properties used as security will not comprise of high-rise buildings or, if they do, that they comply with fire safety regulations with a completed EWS1 form.”
Ms Roya warned that without a solution, registered providers risk holding on to “redundant stock” that cannot be borrowed against and could lead to a shrinking portfolio with which to access funding.
“This isn’t a high concern as yet, but this may change in the next year or two if regulations keep changing and more specific guidelines are not introduced,” she added.
READ MORE
Katie Dyer, a partner at Trowers & Hamlins, has also picked up on the proviso being used by lenders.
She said: “We have seen an increase in condition precedents in new loans requiring confirmation from registered providers. Where a funding arrangement predates EWS1 requirements and new security is being put in place, funders are increasingly requiring an officer’s certificate from the registered provider requiring confirmation of an EWS1 is in place for any property that is over 18m.”
Last week the government announced it would be providing an extra £3.5bn for the removal of dangerous cladding from buildings taller than 18m. However, housing associations will only be able to access funds for its leaseholders and shared owners.
The EWS1 form was launched in December 2019 to give certainty to mortgage lenders on the fire safety of buildings, but the forms have been notoriously difficult to secure since only a small number of qualified professionals are available to carry out surveys. Many of the checks that have been completed stated that the buildings need remediation work.
Where landlords are looking to put into charge new properties with fire safety defects, “pretty much all lenders will say no,” according to Ruby Giblin, a partner at Winckworth Sherwood. For properties already taken into charge that require remediation, some lenders will subtract the cost of works from the value of the building, reducing the value that can be achieved on loans.
“Revaluations happen every five years or so, and three years on from Grenfell the volume hasn’t been too much but it will increase, with some lenders indicating they may think again and consider covenants in the loan agreement,” said Ms Giblin.
The Royal Institution of Chartered Surveyors, which produced the EWS1 form, consulted on changes to the form earlier this year and a new version is expected in the coming weeks.
Susie Rogers, a partner in the housing team at Capsticks, said housing associations are hoping the form will simplify the process as “a lot of registered providers have already charged the low-hanging fruit and are now having to deal with the more challenging units”.
Sign up for our development and finance newsletter
Already have an account? Click here to manage your newsletters
Sign up for our Retrofit Challenge Virtual Summit
If topics such as those mentioned in the above article are of interest to you, register for our Retrofit Challenge Virtual Summit here.
