Ministerial Working Group on Mortgage Lending and Cladding: report - March 2021

Context – issues, risks and obstacles identified

5. The EWS (External Wall System) process, resulting in an EWS1 Report, was developed by the Royal Institution of Chartered Surveyors (RICS), UK Finance and the Building Societies’ Association in consultation with others in 2019. It provides a way for those selling flatted property with external wall systems to show that these have been assessed by an expert. This in turn is used by valuers to determine whether remediation works with a material impact on valuation might be needed, and by lenders in considering whether to lend on a property. The intention was that this would apply to high rise residential buildings of 18m height and above, however in practice, and following publication of UK Government advice on building safety in January 2020 which applies to flatted buildings of all heights (not houses), the process is being used for buildings at a variety of heights and surveyors and lenders have taken varying views on the applicability of EWS1. The varying positions taken by lenders reflect their own legitimate commercial decisions and risk appetites for flats affected by potentially unsafe cladding. Valuers have also taken different approaches, which reflects their professional expertise and work for which they hold professional indemnity insurance. This has been frustrating for people trying to understand when an EWS1 would be needed.

6. There is a lack of robust data on the number of people, and flatted properties, in Scotland that have used the EWS1 process. Anecdotally, it has worked for some but on the whole the operation of EWS1 in Scotland has faced some practical challenges. The Group has heard evidence from homeowners, professionals, surveyors and lenders on the following areas that need to be addressed:

• Clarity on when an EWS1 assessment is required, who can provide it and how to source an appropriately qualified and insured professional.
• Multiple ownership of flatted buildings in Scotland meaning that EWS1 assessment is operating on an individual flat basis rather than for a whole building, as originally intended.
• The market for professional indemnity insurance is a limiting factor in the availability and affordability of securing appropriately qualified professionals to undertake EWS1 assessments.
• The lack of single EWS1 assessments per building (often driven by the need to obtain appropriate consent of multiple owners or the limits of professional indemnity insurance in place) means varying ‘rewrite’ costs for other flat owners wishing to sell or remortage their property.
• Challenges for homeowners in issues such as insurance cover and knowing what to do next if an EWS1 report points to action being needed that would affect the value of the flat before a lender will agree to lend on that flat – particularly if remediation is expected to be costly and would need agreement of multiple co-owners.
• Concerns about whether the process is vulnerable to fraud.