LEASEHOLDERS STUCK in flat blocks with combustible cladding could have their insurance claims paid by the government ‘in a bid to put a brake on spiralling bills’.
Mail Online reported on the reports that homeowners could have their insurance claims paid for by the government, as ministers ‘are facing calls to step in to fix the market’ with insurance premiums having ‘soared’ by £1.6bn a year for those living in combustibly clad blocks. MPs also ‘demanded’ an investigation into insurance firms ‘that are increasing bills for cladding victims’, with the news outlet stating that the insurance companies are ‘braced for a backlash’.
In the parliamentary debate about cladding last week, Conservative MP Sir Peter Bottomley stated that insurers were increasing premiums by amounts that should be investigated by regulators ‘to see if they are fully justifiable’, with some blocks having seen premiums increase by up to 1,600% and others having ‘had their cover pulled completely’.
Residents without buildings insurance ‘risk their homes being repossessed because they may be in breach of their mortgage terms’, with the average bill for hundreds of thousands of affected leaseholders reaching £40,000 to fix fire safety issues with blocks. In addition to this, they are ‘already haemorrhaging’ £2.2bn a year on ‘stop-gap’ safety measures and insurance, which are ‘emptying their bank accounts before they are slapped with hefty repair bills’.
While the news outlet noted that insurers are ‘considering emergency measures’ to help make cover affordable, sector experts were said to have stated that ‘the only realistic solution is for the state to underwrite claims because insurers appear unwilling to take on the risk’. A source close to the Ministry of Housing, Communities and Local Government said meanwhile that ‘ministers are acutely aware of the insurance issue and are considering how best to support leaseholders.
‘Insurers have a role to play, but don’t be surprised to see the government step in to support the market and perhaps stand behind major claims’. A number of insurers said premiums ‘will not return to normal levels until repairs are complete’, while the government said it was ‘not currently planning to step into underwrite claims’.
Insurance expert Roger Flaxman noted however that this has led to a ‘Mexican standoff’, with ‘one proposal [being] that the government should take on the risk and enlist a large insurer to manage the process’, but ‘the government is baulking at that because of the costs’. A government spokesman told the news outlet: ‘We are considering a range of options and no final decisions have been made.’
In turn, the Association of British Insurers’ Laura Hughes said: ‘We are discussing with the Government possible short-term solutions which may help leaseholders, building owners and fire safety professionals.’
Last week, it was reported that the Treasury was being beseeched to add a ‘substantial’ amount of cladding remediation funding, with a ‘Cabinet tussle’ over increased funding seeing pressure ‘mounting’ on Chancellor Rishi Sunak from Housing Secretary Robert Jenrick. Ministers were ‘considering’ imposing levies on construction firms, with government sources discussing the ‘intensive efforts’ made to add a ‘substantial sum’ to a developers levy.
Earlier this month the government was said to be considering funding fire safety works on residential blocks via a £2bn levy on developers - which could raise up to £200m a year for a total of £2bn in 10 years, and ‘could mean a levy on all high rise flats and [a] separate charge on major builds’ to ‘atone for building tens of thousands of flats and homes with unsafe cladding and insulation in recent decades’.
The proposals are part of the package of measures being discussed by Mr Sunak and Mr Jenrick, including two annual levies to ‘ease the financial burden on leaseholders’, including adapting the existing community infrastructure levy that sees developers ‘pay to improve the community in return for planning permission’.
The second meanwhile would be a ‘gateway levy’ that would see developers pay a levy on new high rise flat blocks, which would ‘meet demands by campaigners’ to ‘stop big developers shirking their responsibility’. Leaseholders remained concerned the plans ‘do not go far enough and will still lumber them with huge long-term loans to pay’, which could take 30% off the value of homes.
The government was also said to be considering a hardship fund to provide extra help to those facing the largest bills; a cap on repayments to help those facing bills of up to £100,000; prioritising grants for those in high rise blocks ‘who are at most risk’; and a five year freeze on repayments until 2026 or later.
There were however ‘grave concerns’ expressed by the All-Party Parliamentary group for Leasehold Reform after their meeting with government adviser Michael Wade last month. Co chairman Justin Madders understood ministers were ‘going ahead’ with a loan scheme that ‘puts the majority of costs on the unquestionably innocent party. The government is going to frontload it in a way that gets the work done, but ultimately saddles people with huge debts’.
A fortnight ago, Prime Minister Boris Johnson promised that the government would provide a plan for the crisis ‘very shortly’, while Labour brought forward a vote and a list of proposals to parliament yesterday that aimed to protect leaseholders from paying for fire safety works – including remediating cladding.
December’s reveal that Mr Wade – the government’s advisor appointed to advise on cladding issues – had been ‘working on a proposal to provide long-term finance to buildings to pay for remediation work’ had been reported earlier that month to have been in the form of flat owners taking on 30 year loans ‘akin to a second mortgage’ to fix fire safety issues.
Mr Wade, an insurance executive appointed last July, was said to have been ‘considering long-term loans’ as a solution to protecting leaseholders from ‘unaffordable’ costs ‘without burdening taxpayers further’. This was said to potentially mean ‘hundreds of thousands’ of flat owners could ‘be forced to take on 30-year loans akin to a second mortgage’ to fix issues.
Building Safety and Fire Minister Lord Greenhalgh had told the House of Lords in December that levies ‘do not raise very much, and you have to balance that with the need to build more homes’, though later ‘advocated’ them as helping to allow developers to ‘regain the public trust needed to carry on in business’.
Most recently, Barratt became the first construction firm to call for a levy on developers to ‘bail out victims’ of the cladding crisis, with the company stating that the industry had a ‘collective responsibility’ to cover the costs. Despite this, leaseholders living in the company’s homes said they had ‘already paid tens of thousands’ for ‘stop-gap safety measures’ while waiting for repairs to begin.
Both MPs and campaigners welcomed the move, but while calling on ‘others to follow suit’, they also warned that developers must not be able to get away with ‘token gestures’.
Clive Betts, chairman of the Housing, Communities and Local Government Select Committee (HCLGC), said Barratt might have ‘worked out that a levy is coming’ and ‘want to be getting good public relations in advance’, but added: ‘I hope the rest of the industry welcomes something along similar lines. The principle of a levy is one thing, but it must raise sufficient funds so that there’s a real contribution from the industry to reduce the cost to the taxpayer and ensure that leaseholders pay nothing.’
Read our article 'What is cladding?' here