‘High rise’ must not become a toxic brand

The deadly fire at Grenfell Tower was the worst of its kind that the UK has ever seen. There are many immediate human impacts from the tragedy but less immediate – yet significant in the wider context that awaits tenants, owners and landlords alike – is the implication for mortgage finance. Why is this important? Because if we want social mobility, flats have to be mortgageable, yet there is plenty to suggest demand may be collapsing and financing may become part of the problem. Tower blocks are, of course, far from homogeneous. Mortgage lenders’ responses should be considered and not reactionary.

What is emerging in the aftermath of the tragedy is a complex picture of contractors and sub-contractors, building components and systems. But the lessons go beyond the culpability of individuals and single components.

There was no single cause of the tragic 24-story Grenfell Tower blaze. Over and above construction type and renovation materials, many have already pointed to the compounding impact of the lack of dual staircases, lack of sprinklers both outside and inside, and sub-standard fire doors—none of which at this time appear to have violated the law.

High rise has always presented issues for mortgage lenders. For some, the term means more than 5 storeys, others more than 8, or even 10. Then there are hybrid approaches that permit lending only up to certain floors (e.g. up-to the 8th floor but not beyond). From understanding the real value of floor space in studio flats to issues surrounding communal facilities such as the number and position and size of lifts, value can change and impact the type and volume of potential resale buyers. Having a lift may sound important but if it cannot withstand modern pushchairs, wheelchairs, or deliver access to private car parking, then buyers will be deterred. Confidence in the resale value therefore affects lenders and nowhere is this more true than in the case of Local Authority blocks. Over and above worries about the occupation mix, affecting resale values, the build type is often problematic. Ex Local Authority large panel high rise (typically more than 20 storeys) remain a problem for the majority of lenders and many make blanket restrictions that impact newer private modern blocks in prime areas. Not all lenders automatically decline Local Authority blocks but, where they do lend on them, they like to see the majority of these flats in private ownership, and will not accept blocks with shared balcony or deck access. This can often mean that they remain unlikely to lend on many ex Local Authority high rise flats except in some affluent areas of London.

If we consider when and why these flats were built we can immediately see why views on their values alter. High rises built in the 1950s through to 1970s were developed in inner city areas by local authorities in order to satisfy the post war housing need. They are older blocks now and often in need of maintenance that can drive up service charges to undertake communal repairs or upgrades that can incur large costs. The problem is exacerbated by the construction methods of the time that employed large concrete panel systems, many of which have deteriorated. The construction methods may have a limited remaining viable life and servicing and maintenance costs can be steep, unpredictable and sudden. Others were built using High Alumina cement (HAC) which again, in some cases, have suffered deterioration in concrete strength and increased vulnerability to chemical attack. It is partly for these reasons that lenders have been reluctant to accept these high rise properties. Ultimately, high rise buildings in certain situations are expensive and more problematic to maintain and repair - even more so if these blocks have been poorly managed.

Even when repairs are made, the removal of one system for another can be problematic. Fire safety experts warned as much as 18 years ago that the cladding used on buildings such as Grenfell Tower—used to improve both energy efficiency and aesthetics—posed a deadly threat because it essentially turns a high rise into a chimney, ‘the cladding was made of aluminium and... polyethylene’.

More recent high rise development has tended to have been built over the past 10 to 15 years, again mainly in inner city areas and perhaps more noticeably in and around London and other major UK cities. In many cases, these developments have been in response to the growth in Buy to Let demand. The problem then is that many of these more recent developments experience a very high level of rented occupation which can then lead to block management issues resulting in poor levels of maintenance and repair. Multiple private ownership, ironically, can dissolve or dilute responsibility. This can then lead to an adverse impact on values and re-sale prospects. Furthermore, contemporary high rise can still become problematic as some modern build techniques are not proven in terms of longevity of the materials being used which leads to a reluctance on the part of lenders to accept these types of construction given their experience of older builds.

High rise is a challenging area but a more forensic knowledge of the geography, build history and usage can allow us to more accurately understand the risks. A learning journey is only just begun.