4Information and guidance to support lending decisions
Lending decisions prior to 2012
47.We heard that in 2009 many UK mortgage lenders became unwilling to lend on properties affected by Japanese knotweed, on the basis that it was proving too difficult to quantify the risk to the lender.75 Stephen Hodgson, representing the Property Care Association (PCA), recalled that “ten years ago, we had a situation approaching mad panic and you simply could not get funding for affected properties”.76 Abbey National (now Santander) in particular had adopted a policy of declining all applications where Japanese knotweed had been identified by the valuer.77 Philip Santo, a surveyor, told us that changes in lender policies led to “sensationalised press coverage” and “a corresponding vicious circle which still largely colours public perception and directly affects property values”.78
The 2012 RICS risk framework
48.Significant progress was made in tackling this problem in 2012, when a working group under the auspices of the Royal Institution of Chartered Surveyors (RICS) was set up to produce an information paper, which included an “objective means of assessing property risk” to be applied by surveyors and used by lenders to inform their policies.79 Arrangements were also made for a national representative body for the remediation industry to be set up to provide assurance of standards in treatment (with a specialist group under the aegis of the PCA subsequently established).80
49.The categorisation of risk in the 2012 framework used a distance of seven metres as its threshold for concern regarding the proximity of the plant to parts of the property. The level of risk was further broken down and categorised according to whether knotweed was visibly within this distance of the boundary of the property as a whole (i.e. including a garden, for instance), or was within that distance of habitable buildings. This is summarised in Table 1.
Table 1: RICS Japanese knotweed risk assessment framework (2012)
|
Category |
Descriptors |
|
4 |
Japanese knotweed is within 7 metres of a habitable space, conservatory and/or garage, either within the boundaries of this property or in a neighbouring property or space; and/or Japanese knotweed is causing serious damage to outbuildings, associated structures, drains, paths, boundary walls and fences and so on. Further investigations by an appropriately qualified and/or experienced person are required. |
|
3 |
Although Japanese knotweed is present within the boundaries of the property, it is more than 7 metres from a habitable space, conservatory, and/or garage. If there is damage to outbuildings, associated structures, paths and boundary walls and fences, it is minor. Further investigations by an appropriately qualified and/or experienced person are required. |
|
2 |
Japanese knotweed was not seen within the boundaries of this property, but it was seen on a neighbouring property or land. Here, it was within 7 metres of the boundary, but more than 7 metres away from habitable spaces, conservatory and/or garage of the subject property. |
|
1 |
Japanese knotweed was not seen on this property, but it can be seen on a neighbouring property or land where it was more than 7 metres away from the boundary. |
Source: RICS, Japanese knotweed and residential property, 1st Edition, 2012
50.We heard that the 2012 RICS paper achieved a significant positive impact when it was published. Matthew Jupp, from UK Finance (which represents 98% of the mortgage lending industry), told us that “the paper from the RICS gave that comfort in enabling lenders to take a more understanding approach to Japanese knotweed”.81 Stephen Hodgson from the PCA highlighted how quickly Santander had then changed its approach after publication of the paper in 2012:
Santander is a really good example. It was really flighty about the whole issue of Japanese knotweed. Once the paper and protocols were set up, it was one of the quickest organisations to turn its attitude around and say that, if treatment plans were in place and it was properly quantified, it was comfortable to lend.82
He also noted the impact of the paper on professionalising the remediation industry as “Before the publication of the RICS document, there was no framework for procurement”. The process made clear that the industry needed “some standards around what it did and how it did it”.83
Current lender attitudes
51.While the 2012 framework gave many mortgage lenders the confidence to offer mortgages to affected properties, we also heard that various restrictions still applied today. The RICS website states that:
The majority of UK mortgage lenders will want to see evidence of a commitment by the owner of the property to fund, in advance, a long-term chemical treatment programme effective against Japanese knotweed, or provide instant eradication by way of excavation and removal. This is often referred to as a knotweed management plan.84
52.Matthew Jupp, representing UK Finance, told us that most lenders would moderate their response to the presence of Japanese knotweed according to the four levels of the RICS framework:
In the run-up to this inquiry, I spoke to a number of lenders about their risk-assessment policies on Japanese knotweed. Most of them came back and said to me that at RICS levels 1 and 2—when knotweed is present at a neighbouring property, or present on the property but a fairly long distance away from the home—that would not be a concern for them at all; they would be happy to lend on that property. If it is at levels 3 and 4, which means that it is closer to the property, they would want to see some management plan in place.85
UK Finance’s written submission provided some further detail on what lenders would expect to see at levels 3 and 4 in the RICS categorisation (see Table 1 above).
- A full assessment carried out, treatment plan put in place, and programme started;
- A transferable guarantee/warranty to be provided on the completion of work (backed by suitable insurance);
- Funds to cover the full treatment works to be paid upfront or held in an escrow account or similar;
- Insurance to be in place in case the firm carrying out the work goes into administration; and
- Treatment work to be carried out by a suitably-qualified person, usually a member of the Property Care Association (PCA) or Invasive Non-Native Specialists Association (INNSA).86
53.Advanced Invasives provided some further clarity on how this approach worked in practice:
The more risk-averse lenders may still refuse a mortgage application outright, even where a treatment plan can be arranged. Many lenders will only agree to lend after a full cycle of knotweed treatment is completed, creating the issue of a multi-year delay on buyers and sellers being able to raise mortgages and transact freely, even where treatment is planned.
Others will lend on a case-by-case basis and only where a course of professionally applied herbicide treatment, which takes a minimum of three years, is supported with evidence of that treatment in a management plan, and the now standard provision of the insurance-backed-guarantee on the agreed work.
54.Professor Wade summarised that lenders’ responses to Japanese knotweed was “disproportionate”, and that “we are over-reacting to this plant”.87 Sean Hathaway, Swansea Council’s Environment Officer, gave us an example of a lender not taking a proportionate approach:
We had one recent problem where a local authority was treating knotweed on its land, which was over 60 metres from the [neighbouring] property and within a couple of metres of the boundary. The lender still insisted on a guarantee from a professional company, which I and the buyer and seller thought was completely over the top bearing in mind it was 60 metres away from the house. […] They were following guidelines, in that it was within 7 metres of the boundary […] The lender knew it had been treated, and was going to be treated in the future, but still took that over-the-top approach.88
55.Despite UK Finance’s general assurances, Charles Lyndon Ltd, a firm of solicitors who have acted in cases relating to Japanese knotweed, provided some examples of lenders who had a blanket ban on lending on property affected by Japanese knotweed, such as Metro Bank.89 We also heard through our roundtable discussion that HSBC had recently altered its policy in relation to Japanese knotweed to introduce new restrictions.
56.We wrote to Metro Bank and HSBC to ask them to clarify their positions. Metro Bank told us that “we do not as standard lend on properties which are affected by Japanese knotweed, nor where Japanese knotweed is within seven metres of the property”, but that some cases could be considered “on an exceptions basis”.90 However, Metro Bank did indicate that it would be prepared to alter its position in response to any update from RICS to its 2012 paper, to ensure that Metro Bank’s policy “remains in keeping with the latest industry best practice”.91
57.HSBC told us that it had updated its policy in June 2016, when it “introduced tabulated distance criteria and relative acceptability to enable us to consider property valuations on a case by case basis”.92 Prior to this, HSBC would only lend “in the event of eradication supported by a guarantee”. Tellingly, their response also indicated their reliance on the ‘seven-metre rule’ as the basis for their decision:
Current HSBC policy classifies any Japanese knotweed noted closer than seven metres to the property as unacceptable security. In practice, this presumes that Japanese knotweed is visible and growing in situ (otherwise a valuer would not see it to be able to record its presence).93
While HSBC also indicated its willingness to make use of any updated RICS guidance, the bank suggested that public perception would remain a key factor:
RICS guidance on Japanese knotweed has been important to date and we look forward to considering any updated guidance. However, the judgement of the market itself upon the presence of Japanese knotweed has primacy in HSBC’s assessment of lending security, and so long as the public’s negative perceptions of Japanese knotweed remain, this must necessarily be adequately reflected in policy.94
The origins and evidence for the ‘seven-metre rule’
58.Philip Santo, a surveyor who led on the 2012 information paper for RICS, provided a brief history of the ‘seven-metre rule’ as the threshold for concern, and how it came to form the basis of the RICS information paper:
The [2006] Environment Agency publication, The Knotweed Code of Practice—Managing Japanese Knotweed on Development Sites,95 referred to a [rhizome] radius of seven metres around a visible infestation, but this distance was regarded as conservative by most of the remediation representatives on the working group, who suggested the radius should be five metres; others preferred ‘playing safe’ by adopting a 10-metre radius. In the end it was concluded there was no evidence-based reason to adopt anything other than the seven-metre radius used by the Environment Agency and ultimately this was the distance adopted in the RICS Risk Categories Table.96
59.Professor Wade further traced the origins of the ‘seven-metre rule’ to a “throw-away remark” in a 1998 research paper:
It says, “Rhizomes grow down [sic] to a depth of one metre, although they have been known to spread up to seven metres laterally.” It does not even tell us whether it is the centre of the stand, the edge of the stand or whatever.97
60.The Fennell et al research which prompted our inquiry (see Chapter 2) explored whether there was evidence to support the seven-metre rule. The authors found that “the seven-metre rule is not a statistically robust tool for estimating likely rhizome extension. Fallopia japonica rhizome rarely extends more than four metres from above-ground plants and is typically found within two metres for small stands and 2.5m for large stands”.98 Advanced Invasives described the seven-metre rule as “a somewhat arbitrary threshold”, and told us that refusal to lend on properties where knotweed was within seven metres of a habitable space was “an over-response to the actual issue of damage”.99
Calls to update the RICS framework to reflect the latest research
61.While the RICS framework has clearly been highly influential and now forms the basis of many mortgage lenders’ decision-making process, the RICS website currently states that “this document is no longer current but can be referred to as information”.100
62.We heard many calls for the RICS framework to be updated in the light of the latest research in this area—and no submissions that argued that an update was unnecessary. Advanced Invasives complained that “the [2012 RICS] risk framework has been applied by surveyors practising more and more defensively […] to the extent that the presence of knotweed within seven metres of a habitable property boundary, often irrespective of any actual damage, is effectively stigmatising to a property”.101 They argued that the framework had become “a prescriptive label”, whereby “many mortgage companies may automatically refuse to lend on properties within seven metres of a knotweed infestation”.102 This was despite the framework advocating “further investigation” by qualified surveyors in these categories, rather than determining that the presence was necessarily a problem (see Table 1). This reliance on seven metres as the threshold for concern was borne out by the responses we received from HSBC and Metro Bank (see paragraphs 56–57).
63.Stephen Hodgson, representing the Property Care Association, told us that the Fennell et al research was undertaken specifically to inform a potential review of the 2012 RICS paper:
In 2016, at the request of the RICS, the PCA put together a bunch of proposed amendments to the guidance. The RICS looked at the amendments, which reduced that seven metres down to three metres as the first action area. It actually pushed back on that and said, “Where’s your scientific evidence?” […] Even though there may have been a two-year delay, the point that we are at now is the direct result of that scientific evidence, which should now feed back into the review. A great deal of the work that would be required for the RICS to make that change already exists.103
64.Ben Lindley, representing Japanese Knotweed Ltd, told us that the seven-metre rule needed to be reassessed, but argued that this should reflect “the most common furthest extent” rather than either an extreme or an average:
Where we find Japanese knotweed travelling furthest—it can go way beyond seven metres—is where there is a path of least resistance: a man-made situation, such as infilled service trenches and service runs. With light, natural sandy soil it can reach its furthest extent. If you look at all of our records, we would fall in line with the [Fennell et al study], in that the average lateral spread is about 1.5 metres for a small stand and 2.2 metres for larger stands. That is an average. If we are to assess how far rhizomes spread and identify a reasonable risk zone for that, you cannot work on the average but the most common furthest extent.104
When pushed for a figure he suggested that five metres might be more appropriate, but advocated an evidence-based approach to revising the risk framework.105
Calls for a more nuanced approach
65.Advanced Invasives called for a more nuanced framework to be created, based not only on the distance from the boundary or building but also soil conditions, paths that the plant could exploit (such as drainage channels and conduits), and the size of the infestation.106 As Dr Jones explained:
Clearly, a sprig of knotweed growing within 7 metres of your house or property boundary is not as problematic as 200 square metres of it growing 8 metres away. […] Stigmatising a property for having a tiny amount of knotweed growing in relatively close proximity either to the boundary or the house is clearly not the intent of the RICS guidance.107
66.Professor Wade noted that assessment frameworks for other types of problems were much more nuanced in comparison, and that assessments relating to Japanese knotweed should be similarly sophisticated:
A tree specialist, approaching a property in terms of whether there is subsidence and so on, has a protocol that they will go through. What is the soil? What is the condition of the tree? What is the distance, and so on? What are the cracks? Are the cracks diagonal? Does the crack increase in width as you move away from it? All those things indicate that there is subsidence.108
67.Dr Jones also observed that older buildings constructed prior to the introduction of Japanese knotweed were less likely to suffer from physical damage than new-build properties that could have been built over a knotweed infestation, and argued that this aspect should be reflected in the lender’s risk assessment:
If we take the Victorian housing stock, if it was constructed around the time knotweed was imported it is not the same as building a new-build house on top of an existing Japanese knotweed stand. Fundamentally, those two are different in terms of construction and the likelihood of Japanese knotweed either coming up through the foundation or penetrating the structure.109
68.Our witness from UK Finance suggested that the mortgage lending sector would be willing to take part in a review of the 2012 paper, and that an updated framework could be influential within the sector. He told us that “lenders are reliant on guidance from other bodies; we would very much like to see that [RICS] guidance updated […] We will be happy to be involved in a group looking at that”.110
69.We pressed our witness from RICS, John Baguley, on whether it was willing to publish an updated paper:
I think that there may be an impression that we are going to sit back and let time pass by, but we are not. I cannot give you a deadline for the creation, because that will be influenced by several factors, but I can give you the assurance that from the RICS perspective we will absolutely convene meetings to get people around the table to see where we need to be. […] The general public, buying public and the lending community have to have the best information available to them, so we will absolutely move with this.111
He referred to this process taking place “this year”, and following our evidence session RICS told us that it had “convened two Leaders Forums”. RICS explained what had been discussed at these meetings and possible changes:
The Forums set about examining current guidance and approach and to consider next steps in terms of developing appropriate tools in the assessment and reporting of Japanese Knotweed to ensure reporting in a proportionate and consistent manner, taking into account the latest academic research.
Following the first meeting, Forum members committed to developing alternative risk tools which would allow the assessment of damage and impact in a way which would not be entirely reliant on distance alone, rather to assess by way of the risk posed. RICS is now in possession of proposed methodologies and is considering next steps.112
Conclusions
70.The existing RICS risk assessment framework for Japanese knotweed has ensured that in many cases lenders have the confidence to lend against properties affected by Japanese knotweed, so long as there are funded treatment plans and insurance-backed guarantees covering the treatment in place. These can be expensive for homeowners looking to sell, but they often provide a route for the buyer to secure a mortgage.
71.However, the ‘seven-metre rule’ that forms part of the 2012 risk assessment framework is being used as a blunt instrument in some mortgage lending decisions. It does not reflect the latest scientific evidence. RICS itself notes that the framework is “no longer current”, but in the meantime it is still forming the basis of mortgage decisions. This framework lacked a clear and comprehensive evidence base and yet is causing significant problems to some house vendors and purchasers. A much more nuanced and evidence-based risk framework is urgently needed to reflect the latest thinking on the significance of Japanese knotweed, in relation to the size of the infestation, the distance from the property, and the potential risk of any damage. We are pleased to hear that following our evidence session RICS has convened meetings of stakeholders and influencers to update its 2012 assessment framework for Japanese knotweed to ensure that its policies reflect the most up-to-date evidence. We hope that RICS will complete this update as soon as possible and certainly no later than the end of this year.
84 RICS, “How to: Deal with Japanese knotweed”, accessed 6 March 2019
89 Charles Lyndon Solicitors (JKW0018). The Metro Bank website lists Japanese knotweed as “not accepted” in its mortgage lending criteria [accessed 4 March 2019]
98 Fennell et al. (2018), Japanese knotweed (Fallopia japonica): an analysis of capacity to cause structural damage (compared to other plants) and typical thizome extension. PeerJ 6:e5246; DOI 10.7717/peerj.5246
100 RICS, “Japanese Knotweed and Residential Property, 1st edition—no longer current”, accessed 5 March 2019
Published: 16 May 2019