Leaseholders caught up in the cladding scandal face yet another risk, as a housing market stalemate has opened the door to potentially untrustworthy cash buyers.
Flat owners have told us of ‘sharks’ approaching them out of the blue, and of drawn-out, troubled and ultimately unsuccessful attempts to sell their homes at a discount to put an end to their building safety woes.
Here, Which? explores whether selling a flat for cash is a viable option for long-suffering leaseholders, or if the risks – for buyer and seller – are just too great.
Why can’t leaseholders sell their flats?
‘Why don’t you just move out?’ It’s a question many leaseholders we’ve spoken to have heard from well-meaning friends or family when they share their stories of crippling financial harm from cladding-related bills.
On the surface, it’s not a bad question. Moving out would in theory solve all their problems. No more fire risk, no more bills, no more worries. But in almost every case it isn’t possible to do so through conventional means.
This is because mortgage lenders require a building to pass an EWS1 fire safety inspection before they will lend to new buyers. Without a good EWS1 rating, it can be nearly impossible to sell your flat.
This is still the case, despite a recent government announcement intended to remove the need for an EWS1 for flats in buildings under 18 metres. Our understanding is that this announcement has had little to no effect on lenders so far.
- Find out more: new EWS1 advice causing property market confusion
Is there another way to sell?
Banks are still reluctant to lend on flats with potential building safety issues, but what if you don’t need them to?
Selling to a cash buyer, who won’t need a mortgage, cuts lenders out of the process. So it’s no surprise that some leaseholders are tempted by this approach. But it doesn’t always yield results.
Even if a cash buyer is interested in buying an unsafe flat, they’re unlikely to pay the full price. Nathan Emerson, CEO of estate agent body NAEA Propertymark, says lower-value offers will stem from the huge risk buyers would be taking on, especially in cases where remediation costs are unknown.
For leaseholders, selling for cash means losing out on potentially tens of thousands of pounds in their home’s value. It could even mean selling for less than what they paid for their property.
But considering the stress, potential danger, and unaffordable cost of staying put, many leaseholders could be willing to take that loss to put an end to the nightmare.
‘Some sharks are willing to take it off your hands for buttons’
Mark and Julie Berentzen have considered selling their Manchester flat to a cash buyer.
In 2017, the couple bought the flat for their daughter to live in. They both took early retirement and planned to sell the flat to fund their travels once their daughter had moved out.
But by that time, fire safety surveys had found multiple defects, rendering the flat almost completely unsellable, meaning they are now stuck paying the hugely increased service charge to keep it, and awaiting a potential six-figure remediation bill to fix it.
‘Our flat is worth nothing,’ said Mark. ‘I’ve tentatively tried to sell the flat. There are some sharks out there willing to take it off your hands for buttons but effectively the flat is worthless.’
Mark described how one of these ‘sharks’ left a message on a leaseholder Facebook page, offering help for affected leaseholders trying to sell: ‘Just out of interest, I progressed it with him and gave him quite a lot of information about the risks associated with it. He seemed quite interested for a while. Now the interest has stopped, which doesn’t surprise me.’
- Find out more: how to sell your house
‘I couldn’t even sell for a £60,000 loss’
John*, a leaseholder from south London, came close to selling his flat to a cash buyer. But in the end, the sale collapsed when the buyers mysteriously pulled out.
John put his flat on the market with an estate agent, who listed it for cash buyers only. He managed to get an offer from a property investor, who agreed to pay £255,000 for a property John bought for over £300,000. This price was negotiated up from an initial offer that was £100,000 below the flat’s initial value.
John describes ‘several young men in their 20s’ turning up to view the flat before agreeing to the sale.
‘A £60k loss is gut-wrenching, but I just wanted to get out of this horrible situation,’ said John.
He found a solicitor who agreed to take on the sale for free, filled out many forms, and the sale appeared to be going well.
Then, after radio silence for a month, the buyers got in touch asking to drop their offer by £5,000 to £250,000.
They said they were concerned about the flat’s cladding, despite John giving them details of the potential building safety issues before the sale was agreed at the original price. The buyers then pulled out of the sale, citing their cladding concerns.
‘The estate agent was apologetic, but I was pretty pissed off. Even for a 60 grand loss, I couldn’t sell it,’ said John.
He tried other routes: auctioning the flat was a non-starter. A website that offered to buy ‘any’ house turned his home down.
The worst part of this experience for John was how close he came to finding an escape. ‘I thought it was done,’ he said. ‘But there’s no way out. The only way out is to fix it.’
‘I can afford to wait, but it’s not the money; it’s the time. I can’t afford to wait around forever.’
*Not his real name.
- Join the conversation: have you had mortgage issues due to an EWS1 form?
Can you trust cash buyers?
Selling your home to a cash buyer, under normal circumstances, isn’t usually a problem at all. In fact, it can help you avoid the perils of a long property chain. But these aren’t normal circumstances.
Property expert Kate Faulkner told Which? the ‘sharks’ leaseholders have seen are likely firms on the dodgy end of what can be a legitimate practice: professional property buying.
Professional buyers, as Faulkner calls them, buy homes quickly in emergencies when people need to sell fast. This could be due to illness or old age.
Faulkner herself used to work at a professional buying firm, which she says would typically offer 90% of market value. ‘Some of our sellers were so poorly that they needed to move very quickly,’ she says.
The problem is with ‘the cowboy element’ – rogue traders who may come in, prey on vulnerable people, and lower their offers at the last minute.
How to avoid shady cash buyers
Avoiding firms like these is a case of doing your homework, checking they are registered with the property ombudsman, and getting an independent legal company to check any contracts yourself.
But if you’re affected by the cladding scandal, you might not be getting offers from decent professional buyers anyway.
Which? spoke to someone who runs a Facebook group for leaseholders affected by the cladding crisis. He described thorough policing of posts relating to cash sales to make sure leaseholders aren’t exploited, and having to ban one user for ‘underhand’ behaviour.
We told Faulkner that leaseholders had been approached by buyers on Facebook. ‘If that’s what they’re doing I’d be very suspicious,’ she said.
These people might not be buyers at all. They could be ‘deal sourcers’ who don’t have the money to buy homes themselves but instead pass on leads to other buyers without telling them about the risks.
Can professional buyers offer a way out?
‘Would I, as someone who has done this professionally, do this for a building caught up in the cladding scandal?’ asks Faulkner. ‘With my professional buyer’s hat on, the risk is too high.’
Jason Harris of professional buyers Open Property Group, echoes this. ‘Essentially it is nearly impossible to quantify the risk and potential cost implications of the remedial works,’ he says.
Harris says his firm is being offered 10 properties with cladding issues a month, but it only owns around five at the moment.
He usually tells leaseholders that selling to his firm is not the best route for them and suggests exploring all possible options in terms of government funding and insurance before looking into selling.
‘If you can hang on, I would’
Faulkner and Harris both agree that leaseholders are in a terrible situation.
Harris says he’s never seen anything like the cladding scandal in his entire career: ‘It’s the biggest property fiasco I’ve ever come across.’
‘The whole thing is just outrageous the way it has been dealt with,’ says Faulkner.
She suggests staying put and hoping for a resolution rather than selling at a discount. ‘If you can hang on, I would. But it is so hard because the costs are piling up.
‘Nobody should ever, ever be put in that situation, which is what’s so horrible about the way this has been dealt with.’
- Find out more: the mental health impact of the cladding crisis