The small buy-to-let was meant to fund their retirement, but it could be their ruin. Two years ago Christine and Robert Marshall invested in a one-bedroom modern flat in Maidstone, Kent. Now its tall block, converted from offices in 2016, is one of thousands nationwide that have failed safety surveys in the aftermath of the Grenfell fire. “We feel sickened,” says Christine, 69.
Investors like the Marshalls are among at least four million people caught up in Britain’s hidden housing scandal. The rapid spread of fire at Grenfell Tower, which killed 72 people in 2017, exposed a nationwide failure of building regulations. More than three years on, at least 200,000 high-rise flats in about 3,000 developments are still wrapped in many kinds of flammable materials, and up to 1.5 million flats could be unmortgageable for years because owners cannot prove their buildings are safe.
“Until a few weeks ago we had absolutely no idea of the scale of the problem,” Christine says. In September the couple’s son, Tom, 31, lost a sale for his flat in southeast London. The buyer’s lender refused a mortgage because an “external wall system” (EWS1) check gave the block the worst rating of B2, meaning it did not meet tightened safety guidance. “This prompted us to call our managing agents, who casually replied that the block our flat is in had also been given a B2 rating,” Christine adds.
The Marshalls still don’t know what is wrong — only that they may have to pay to fix it and can’t sell until that’s done. Potential repair bills are out of reach for the couple, who live on state pensions and “a small income” from the rented flat.
Dozens of buy-to-let owners, from accidental landlords to portfolio investors, have contacted us after The Sunday Times launched a campaign to end the scandal. Here are their stories — and what property investors need to know.
Does your flat need an EWS1 form?
James Bayley, 49, is letting his flat in Greenwich, southeast London, while working abroad, but flammable insulation and high-pressure laminate (HPL) cladding on the 12-storey block, which is only six years old, makes it impossible to sell. “I am facing a pay cut or even redundancy due to Covid-19 and have no way of freeing up equity,” he says.
Yet the crisis does not only affect high-rise flats. If your flat is in a block built or refurbished in the past 20 years or so, you could need an EWS1 form to sell or get a new mortgage, no matter how tall or small the building and regardless of whether it has cladding. The form requires a fire engineer to cut holes and check that not only cladding, but also insulation, balconies and internal wall structures comply with the guidance.
Who pays if the block is unsafe?
So far, nine in ten blocks have failed the checks. Under leasehold law, leaseholders of flats are liable for repairs.
The government has set aside £1.2 billion for private flats, but that will reclad only a quarter of almost 3,000 unsafe high-rise schemes that have applied — and will exclude balconies and structural fire-safety defects. Blocks under 18m (typically six storeys) get no help.
In some cases, usually after pressure from MPs or local councils, developers foot the bill. Phil Rider, 59, has bought 30 buy-to-let properties since 2016 to help to fund his retirement. Two flats above the Cabot Circus shopping centre in Bristol are clad in Grenfell-type aluminium composite material (ACM). The developer, Hammerson, is funding works that, Rider says, “have just begun, but will nonetheless take two years. Rents have dropped as a result. We own a further nine flats in blocks, which are unsellable until an EWS1 form is obtained.”
Where do you get an EWS1 form?
Only the freeholder can commission an EWS1 form, which is valid for all flats in a building for five years. You can’t order an engineer to cut holes for the check because as a leaseholder you don’t own the building. Nor can you force the freeholder to get an EWS1 form because they have no legal obligation to do so.
Ask your block’s managing agent whether the building has an EWS1 form, and if so, what the rating is. If it is A3 or B2, the block does not comply with guidance and will need work. This means that most banks won’t lend to you or your buyer until repairs are complete and a new EWS1 form gives the building a clean bill of health.
What will repairs cost?
Every building is different and costs vary. In the worst cases it can cost £75,000 per flat and take five to ten years.
Chris (who wishes to use his first name only), 44, owns five buy-to-let flats in blocks under 18m in London and Manchester. Three have EWS1 sign-off, although he must pay £800 to replace timber balcony decking at one of these. At the fourth building, a three-storey period conversion, a lender has granted a new mortgage to another flat’s buyer without the need for an EWS1 form. Flammable polystyrene insulation was found beneath render at the fifth flat, in a block under 18m in the City of London. Replacing it could be “painfully expensive”, Chris says.
He fears that the block’s freeholder “is rightly panicking, but wrongly appearing to advise their managing agent to do whatever is required to protect themselves irrespective of whether it is needed and without any consideration of cost, as they are not paying. This has the potential for, at best, very poor decisions being made and, at worst, third-party organisations profiteering off the fear and panic of others by recommending works that are not entirely needed.”
Where do you get answers for your block?
Martin Boyd of Leasehold Knowledge Partnership, a charity for leaseholders, advises owners to “work with the [block’s managing] agent to understand how they think problems will be solved”.
Many block managers are “snowed under” with cladding queries, warns Julie Twist, an estate agent in Manchester. “A lot of the time there is very little they can tell you.” To get results, flat-owners must work together “to make a lot of noise”.
In blocks that qualify for government funding, buy-to-let landlords are eligible for help unless they own “a large number of flats”, Boyd says. Portfolio landlords must sign a declaration that they fall below European Union state-aid limits. Officials will check whether you own flats across multiple sites, Boyd adds.
Can you get a new mortgage?
If your buy-to-let mortgage is coming to the end of its initial lower rate, but your building lacks EWS1 sign-off, “look to take a new product with your existing lender”, says Nick Morrey of John Charcol, a mortgage broker. “If you need to borrow more money you can ask for a further advance, especially if this is to pay for essential remedial work to the building to make it safe.”
What responsibility do you have to your tenants?
Unless the building is so unsafe that all residents are ordered to move out, landlords with existing tenants “don’t have to do anything except pay your service charges and co-operate with remediation”, says David Smith, a housing lawyer at JMW Solicitors. “Your tenant may want to leave, but they will be in a contract.” They are liable for rent until the end of the tenancy term. Case law says that there are “no grounds for a rent reduction” if building works are necessary, he adds.
However, if you market your flat to new tenants, you must disclose anything — including fire risks and upcoming works — that can change the decision to rent “at the earliest possible point” under consumer law. Smith says that you can still let the property “provided you tell them and they choose to take it”. But you may have to cut the rent or be left with a flat you can’t fill.
Should you purchase a flat?
Nicola Flack, 59, lets a flat in the Admiralty Quarter in Portsmouth, but only found out that it has flammable cladding and timber balconies when her husband, Mark Harvey, 61, tried to buy a flat in the same scheme in October. He pulled out with exchange “imminent”, she says. Neither his solicitor nor the estate agent knew that buildings like Flack’s, which is under 18m, could have fire risks other than Grenfell cladding.
Unless it is clear what the costs are and who will pay for remediation, you don’t know what liability you are buying. At one block in Paddington, west London, £7.2 million ACM bills trebled as further defects were discovered. Most towers that have applied for funds from the £1 billion government pot to remediate unsafe non-ACM materials are still waiting to hear how much, if anything, they will get.
Twist says that “very few cash buyers” are purchasing flats with cladding risks. Where buildings still have no EWS1 form “a solicitor will probably advise a cash buyer to buy with caution”, she adds.
Can you sell your flat?
Don’t bother unless you have an EWS1 form with a rating of A1, A2 or B1. “We aren’t marketing flats that haven’t got an EWS1 — 99 per cent fall through,” says Twist, whose estate agency turned away a third of autumn flat sales in central Manchester. “We would strongly advise landlords not to get on that rollercoaster.”
What if you can’t get an EWS1 form?
The £195,000 sale of Steve Newton’s buy-to-let in Alton, Hampshire, fell through last month because the three-storey block lacked the certificate. Newton, 59, says that the freeholder has ignored his “repeated requests” to carry out the survey. “I am withholding the maintenance fees,” Newton says.
But holding back service charges “is almost always a bad idea”, Boyd says. Most leases allow the freeholder to take you to court to make you pay — and even if you win, you must pay both sides’ legal fees, which can be far higher than the debt. Get advice at leaseholdknowledge.com or from a leaseholder volunteer group such as UK Cladding Action Group (@ukcag) or Manchester Cladiators (@McrCladiators).