The consultancy firm said if it was to be assumed that the statement made by the Ministry of Housing, Communities and Local Governments (MHCLG) in November made no difference to the behaviour of lenders, complications could affect all buildings either taller than 11 metres or more than three storeys.

Although the MHCLG said buildings shorter than 11 metres or three storeys would not require an EWS1 form to gain mortgage finance, housing minister Christopher Pincher said lenders had the right to demand one from leaseholders of shorter buildings as it was not a government or regulatory requirement not to do so.

Sales slowdown

Capital Economics said if the EWS1 form was in place in 2019, 40% of the 137,000 flats sold would have faced difficulties completing as they were either three storeys or 11 metres tall.

In the event the leaseholders failed to obtain a form, Capital Economics predicted overall property transactions for the year would have dropped by 7%.

Furthermore, if those sellers were assumed to have otherwise gone on to purchase a new home, the firm said the obstacles would have resulted in a steeper decline of 14% in property transactions for the year.

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The firm said it was unclear whether the EWS1 form had impacted sales in 2020 due to the overall effect of the pandemic on the housing market and a recent demand for larger properties.

However, it found HMRC transaction data in the 12 months to June 2020 showed 17% of residential sales were made up by flats compared to 20% of sales in 2017 – before the Grenfell tragedy highlighted the dangers of cladding.

The report said: “Affected flats may directly see delays in transactions, and disrupted property chains could delay other sales. But putting a hard number on the potential effect is difficult. For one, what happens will depend on policy – if the government or lenders were to relax the rules, then any disruption could quickly disappear.

“Furthermore, a lack of reliable information on the duration and extent of testing delays makes it hard to know how many homes are really being affected.”

It continued: “As a result, our base case is that a policy fix will come sooner rather than later.

“After all, while the cost of inaction now may be reasonably low, with as many as 4.5% of private properties affected by delays, lenders’ incentive to fix any problems will rise sharply once wider housing demand starts to weaken this year.”