Mortgage on flat with cladding

Mortgage on flat with cladding

For many Scottish homeowners, the "cladding crisis" transformed the dream of modern apartment living into a complex legal and financial puzzle. Whether you own a stylish waterfront flat in Leith, a contemporary apartment in Glasgow’s Merchant City, or a high-rise in Aberdeen, the presence of combustible materials on your building’s exterior can feel like an insurmountable barrier to selling or remortgaging.

The landscape changed dramatically following the Grenfell Tower tragedy, leading to the introduction of the EWS1 (External Wall System) process. In Scotland, the situation is unique. Our distinct legal system, the role of the Home Report, and the Scottish Government’s specific approach to remediation mean that the advice you read on UK-wide forums doesn't always apply north of the border.

Securing a mortgage on a flat with cladding is no longer impossible, but it does require a strategic approach. This guide breaks down exactly what you need to know about the current lending climate in Scotland, the costs involved, and the steps you must take to unlock the value in your property.

For those facing urgent timelines, it is possible to sell your flat fast to a professional buyer.

Understanding the EWS1 Form in Scotland

The EWS1 form was created by the Royal Institution of Chartered Surveyors (RICS) to provide a standard way for lenders to assess the safety of a building’s external wall system. It is not a legal requirement to have one to sell your home, but without it, most mainstream lenders will refuse to offer a mortgage to your potential buyer.

In Scotland, the EWS1 process covers the entire building, not just your individual flat. Because Scottish flats are typically owned under "common interest" (where you own your flat and a share of the common parts), the responsibility for obtaining an EWS1 usually falls on the property Factor or the collective of owners.

Read our selling with a mortgage guide to understand how common interest ownership affects the sale process.

The Rating System Explained

When a qualified fire engineer inspects the building, they will issue a certificate with one of the following ratings:

The Scottish "Single Building Assessment" (SBA)

While England has the Building Safety Fund, Scotland has implemented the Single Building Assessment (SBA). This is a government-led programme designed to identify what remediation is needed on a building-by-building basis.

In many cases, these properties are listed for cash buyers only because of the valuation issues.

If your building is part of the Scottish Government’s Cladding Remediation Scheme, the costs of the assessment and the subsequent works are often covered by the state. For a seller, being part of this scheme is a significant "selling point" because it provides a clear pathway to a safe building, which gives lenders the confidence they need to approve a mortgage.

The Housing (Cladding Remediation) (Scotland) Bill

Passed recently, this legislation gives Scottish Ministers the power to carry out these assessments and urgent remediation work. For homeowners, this means that even if a developer has gone bust or is refusing to pay, the government can step in to ensure the building is made safe, which is the ultimate key to restoring your property's market value.

The Impact on the Scottish Home Report

In Scotland, the seller is responsible for providing a Home Report. This document includes a Single Survey, an Energy Report, and a Property Questionnaire.

If a surveyor suspects there is cladding on the building, they will include a "caveat" in the Single Survey. If an EWS1 form with a satisfactory rating (A1, A2, or B1) is not available, the surveyor may provide a £0 (Nil) Valuation.

A nil valuation doesn't mean your home is worthless; it means the surveyor cannot accurately value the property until the fire risk is quantified. This effectively prevents any buyer who requires a mortgage from purchasing the property, limiting your market to cash buyers—who will often expect a significant discount (sometimes 20-40% below market value).

In these cases, cash house buyers may be the most viable option for a certain sale.

Can You Actually Get a Mortgage?

The short answer is: Yes, but with conditions.

As of 2023/2024, several major lenders (including Lloyds Banking Group, NatWest, and Santander) have updated their policies. They are now more willing to lend on "B2" rated buildings provided there is evidence that:

1. The building is part of a government-funded remediation scheme (like the SBA in Scotland).
2. Or, the original developer has signed a "Pledge" to fix the building at their own expense.
3. Or, there is a clear, costed plan for the works with a confirmed start date.

Lending Criteria for Scottish Buyers

If you are buying a flat with cladding, your solicitor will need to confirm the status of the "Missives" (the contract). They will look for "letters of comfort" or evidence from the Factor that the remediation is fully funded. Lenders will generally not approve a loan if there is a risk that the individual flat owner will be hit with a massive, un-costed bill for repairs in the future.

Practical Steps for Scottish Sellers

If you are planning to put your flat on the market, do not wait for a buyer to ask about cladding. Follow these steps:

1. Contact Your Factor: Ask if an EWS1 has already been commissioned or if the building has been registered for a Single Building Assessment (SBA).
2. Review the Title Deeds: In Scotland, your title deeds will outline your share of common repairs. Ensure you know exactly what your liability is.
3. Get a Specialist Surveyor: When ordering your Home Report, choose a firm that has experience with cladded buildings. They can advise on how they will phrase the survey to be as "lender-friendly" as possible.
4. Target the Right Lenders: Work with a mortgage broker who understands the Scottish market. Some lenders are much more "cladding-aware" than others.

The Costs Involved (£)

The financial implications of cladding vary wildly depending on whether the government or developer is paying.

• EWS1 Inspection Cost: Generally between £3,000 and £6,000 for the whole building. Divided among 50 flats, this is negligible (£60-£120), but if the Factor hasn't done it, an individual owner cannot easily commission one.
• Remediation Costs: If not covered by the government or developer, costs can range from £10,000 to over £100,000 per flat.
• Insurance Premiums: Buildings with B2 ratings often see insurance premiums spike. In Scotland, these costs are shared through the "common charges" paid to the Factor. Expect monthly fees to increase by £50–£200 until the work is complete.
• Valuation Impact: Properties with unresolved cladding issues often sell for 10% to 30% less than their "clean" counterparts.

Timelines: What to Expect

Selling a "standard" flat in Scotland might take 6-10 weeks from offer to "settlement" (completion). For a flat with cladding, the timeline looks different:

• Obtaining an EWS1: 3 to 6 months (due to the shortage of qualified fire engineers).
• SBA Assessment: 6 to 12 months for the Scottish Government to complete the full audit.
• Remediation Works: 1 to 3 years depending on the scale of the building.
• Conveyancing: Add an extra 2-4 weeks to the legal process for your solicitor to satisfy the lender's specific cladding requirements.

Common Questions (FAQ)

1. Does every flat in Scotland need an EWS1?

No. RICS guidance suggests that only buildings over a certain height or those with specific types of cladding (like ACM or high-pressure laminate) require one. Generally, traditional stone tenements do not need an EWS1.

2. Can I remortgage if my building has a B2 rating?

If you stay with your current lender (a "product transfer"), they rarely ask for a new valuation or an EWS1. However, if you try to switch to a new lender to get a better rate, they will treat it as a new application and will likely require proof of remediation.

3. What if the developer has gone out of business?

This is where the Scottish Government’s Single Building Assessment is vital. If there is no developer to hold accountable, the building should be prioritised for state-funded remediation, which eventually allows lenders to return to the building.

4. Will I have to pay LBTT on a "nil valuation" property?

Land and Buildings Transaction Tax (LBTT) is calculated on the actual purchase price. If you buy a flat at a reduced price because of cladding, you only pay tax on that lower amount. However, if the price is below the £145,000 threshold, you may pay no LBTT at all (excluding the Additional Dwelling Supplement).

5. Can I rent out my flat if it has cladding issues?

Yes, you can still let the property out, provided you have a valid Energy Performance Certificate (EPC) and meet all other Scottish private landlord registrations. However, you must check with your buildings insurer, as the presence of cladding may affect your landlord insurance policy.

Conclusion

Navigating a mortgage on a flat with cladding in Scotland is undeniably more complex than a standard property transaction. The interplay between the Home Report system and the evolving Scottish Government legislation creates a unique environment for buyers and sellers.

However, the tide is turning. With the Scottish Government's commitment to the Single Building Assessment and major lenders adopting a more pragmatic "pro-remediation" stance, the "cladding trap" is beginning to open. Success depends on transparency. By securing the right documentation early and working with Scottish property experts who understand the nuances of our legal system, you can successfully navigate the sale or purchase of a cladded property.

If you are concerned about your flat's value, your first port of call should always be your Factor and a qualified mortgage advisor who specialises in "complex" Scottish properties.