Wednesday, 10 February 2021

Cladding: Government Announces New Funding & Creates High-Rise/Low-Rise Divide

The Secretary of State for Housing, Robert Jenrick, has today announced in Parliament new grants and loans to tackle the cladding crisis worth £3.5bn, which on top of the £1.6bn it has already paid towards removing dangerous cladding takes the total to £5bn in England.

Non-repayable grants however are only available for cladding removal (but not other necessary works) and are only for high-rise buildings over 18 metres (or 6 stories) in height in England.

Those in buildings lower than this must make do with a loan scheme instead.

If a building is below 18 metres then new long-term low interest loans will be available for the removal of unsafe cladding (but not other necessary works), with repayments capped at a maximum of £50 per month per leaseholder.

The loans will not sit with the individual leaseholders themselves, but with the owner of the building, who will take out the loan and then recharge the repayment cost to the leaseholders through the service charge.

More detail on how these low interest loans will work is awaited, and it appears they will not be available if the building is below 4 stories*[see update at end].

For instance, will these loans be charged against the freehold? How will they interact with other loans secured on the property?

What will be the term length of the loans and the other repayment terms? With the repayments capped at £50 per month per leaseholder, these loans will likely last for many years (at least 50 years I would think). What effect will this have on valuation, both on the buildings themselves and the individual flats within them? How many leaseholders will end up in negative equity?

An extra charge of £50 per month per leaseholder will be a significant extra outlay for many, even if not as ruinous as may previously have been the case.

The position of social landlords is also unclear and may impact on their ability to deliver affordable homes for the future.

The £3.5bn package falls a long way short of the £15bn recommended by a committee of MPs last June to fix all fire safety defects, not just the cladding, on “high-rise and high-risk” buildings.

Inside Housing has polled 1,342 affected leaseholders about the impact of the cladding crisis. It’s the first major research into impacted residents.

The picture is bleak. Of the respondents to the poll:

·       17.2% are actively exploring bankruptcy.

·       41.7% of the respondents had already been served a Section 20 notice by the freeholder – the notice required under the Landlord and Tenant Act 1985 that begins the consultation process required under that Act. 

·       62.5% face costs greater than £30,000.

·       The majority of those impacted (56.4%) are first time buyers.

·       30.6% are 18-35 and 33.6% 35-50. 18% are retired.

·       The majority are on middle incomes. 34% have a household income less than £35,000 and 59% earn less than £50,000. 

·       Most flats are average not luxury. 57.2% had a pre-crisis value of less than £250,000.

Some, but clearly not all, of this will now be mitigated by the extra funding being made available, although the timing for when all outstanding works will be completed (or in some cases even started) is not addressed. 

It is not just the cladding that needs to be fixed. The problems extend much further and are not covered in today’s announcement. 

Of those surveyed by Inside Housing, whilst almost 90% are being asked to remove dangerous cladding, 68.3% require repairs to defective fire breaks; 59.3% require the removal of balconies; and 53.6% require repairs to internal compartmentation. 

These other substantial costs will not be met by government funding and will continue to be borne by leaseholders. In one Manchester block they amount to bill of over £100,000 per leaseholder. 

In responding to questions in Parliament, Robert Jenrick said the measures will not preclude anyone affected taking legal action in respect of defects against insurers, under warranties, or against developers. 

The government does not intend to allow this funding to be met solely by the general taxpayer.

Although light on detail for now, it has announced a developer “gateway levy” targeted at developers seeking to develop certain high-rise buildings in England; and a new tax on residential developers from 2022, which is expected to raise £2bn over 10 years to contribute to the costs of the crisis.

The rates of these taxes have not yet been announced.

The government is to consult on these measures when they are announced in more detail.

*UPDATE: 12 February 2021 - the government has now issued a press release which confirms that the loan scheme is only offered for buildings between 11 and 18 metres, and, as stated above, that the loans are only available for cladding removal, not for other fire safety defects.

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