The Intermediary – March 2025 - Flipbook - Page 48
RESIDENTIAL
Opinion
Data is changing
how we deal with
complex risk
T
he National Audit
Office estimates that
it will cost £16.6bn to
carry out the necessary
remediation of
residential buildings
over 11 metres in the UK. It’s a big
number, and a lot of it is siing on
lenders’ balance sheets, whether they
have quantified it or not.
While the Government has
commied to funding around £9bn of
that, paid by the Ministry of Housing,
Communities and Local Government
(MHCLG), the remainder will need
to come from developer contributions
and the incoming Building Safety
Levy on new developments.
The Building Safety Act 2022 has
allowed the ‘big six’ high street lenders
to offer mortgages to borrowers
whose properties have problem
cladding, but they must meet certain
criteria. The building must either
have confirmation that it will be
fixed by the developer through selfremediation, be covered by one of the
Developer Remediation Contracts, the
Medium Rise Scheme, or the Building
Safety Fund, or be covered by the
leaseholder protections in the Building
Safety Act.
The Building Safety Act
Remediation and the Building Safety
Act have resulted in thousands of
borrowers being helped and not being
trapped in mortgages; however, there
are many thousands who are still
unable to remortgage or sell.
Falling interest rates will take some
pressure off for borrowers on standard
variable rates (SVRs) while they wait
for their homes to be designated
as having unsafe cladding. In the
meantime, they must continue to
make mortgage payments. From the
lenders’ perspective, this heightens
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The Intermediary | March 2025
both the risk that the borrower
defaults and that the asset value is far
below book value.
This poses a prudential challenge,
made more complex by the fact that
there are so many unknowns and
potential unknowns. Historically,
this might have been explainable to
regulators. Lenders, aer all, will have
factored in contingencies relating to
cladding. However, today the data
is available at a granular level – we
know, because we have it.
Among many, there are two things
that lenders must give immediate
and serious consideration to from a
regulatory compliance perspective.
The first is the requirement to assess
back-book values as accurately as
possible. The second is the Consumer
Duty. Lenders must be able to
show they are offering fair value to
borrowers, particularly those who are
deemed vulnerable.
What are customers trapped in
homes they cannot sell or remortgage,
if not vulnerable?
Finding a balance
Lenders are free to interpret the
regulation in line with what’s
appropriate for their business, and
there is a difficult difference between
aiding borrowers and lending
responsibly. What they must do is be
proactive in delivering good customer
outcomes, rather than waiting for the
Financial Conduct Authority (FCA)
to intervene. The Consumer Duty
also requires firms’ management
and boards to use data to identify,
monitor and confirm they are satisfied
that their customers’ outcomes are
consistent with the duty.
Pre-Consumer Duty, capital risk
was the lender’s concern. PostConsumer Duty, there’s another
perspective to take account of –
STEVE GOODALL
is managing director at e.surv
borrowers’ exposure to asset value risk
and the potential for foreseeable poor
outcomes. This is both a challenge that
is not going away any time soon, and
an opportunity to get a really good grip
on balance sheets.
This is one example of the power
of data to inform and underpin
meaningful decision-making for
lenders. We now have the data sets
that can inform beer decisions at this
granular level.
This is not contained to one market.
The UK’s housing stock is a real mixed
bag – some homes can be dated back
hundreds of years, and with one in
five homes over 100 years old, the UK
has Europe’s oldest housing stock.
When it comes to non-conventional
buildings, assessing value based on
comparables takes arguably more
skill. The experience of surveyors
physically inspecting non-standard
homes is vital, but there is increasing
value in using widescale data analysis
across the whole spectrum of homes
that are a lile bit unusual. Access
to that data is not openly available in
the market, but that doesn’t mean it
doesn’t exist. We know it does.
Data is fulfilling an increasingly
important role in lenders’ ability
to make the correct judgements
about property and borrowers. Its
provenance is therefore important.
Sources you can trust are key, which
is why we are developing so many
data solutions. ●
