THE GOVERNMENT’S advisor appointed to advise on cladding issues is ‘working on a proposal to provide long-term finance to buildings to pay for remediation work’, with more details revealed.
Earlier this week, the government was reported to be proposing flat owners take on 30 year loans ‘akin to a second mortgage’ to fix fire safety issues, with a source close to the Ministry for Housing, Communities and Local Government (MHCLG) claiming that the government’s adviser – insurance executive Michael Wade - is ‘considering long-term loans’ as a solution to protecting leaseholders from ‘unaffordable’ costs ‘without burdening taxpayers further’.
This was said at the time 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, with campaigners arguing that such proposals would leave leaseholders in negative equity, and hit ‘those who can least afford it the hardest’ as developers, builders and freeholders of fire risk blocks ‘escape the burden’.
Around 200,000 high rise flats are wrapped in combustible materials, with 1.27m modern flats – or 5% of private homes in England – potentially ‘unmortgageable for years’, and a loan of £30,000 to fix a ‘typical mix of risky cladding, missing fire stops and flammable balconies’ would add around £1,500 per year to household bills at a 3% interest rate.
Nick Morrey of mortgage brokers John Charcol noted that such loans risked pushing leaseholders living in lower value areas into negative equity, while ‘no penalties or levies have been imposed on developers or the manufacturers of flammable materials’. A proposal from the Leasehold Knowledge Partnership charity, via former Bank of England economist Dean Buckner, proposed the government lend funds for repairs to a special purpose vehicle.
This would then ‘lend for buildings to be fixed quickly’, and utilise mechanisms including annual levies on developers and freeholders paying interest to the government ‘at a rate of return comparable to gilts’, so that taxpayers would not have to fund it; Mr Buckner stating that ‘we’re saying: “Those who can pay should pay”’.
Building Safety and Fire Minister Lord Greenhalgh told the House of Lords last month that levies ‘do not raise very much, and you have to balance that with the need to build more homes’. Now, Inside Housing has confirmed from other sources that the plans are proceeding, and gave further information on the loans proposal.
Mr Wade was appointed as a senior advisor to MHCLG in July, and is understood to have ‘been asked to find a way to progress the remediation of thousands of buildings requiring urgent post-Grenfell fire safety work’ – and is attempting to arrange the funding mechanism via 30 year finance deals at rates of 1% to 1.5%.
The loan deals would be entered into by buildings, via owners or responsible persons, who would ‘recoup the cost of repayments from leaseholders, but End Our Cladding Scandal campaigners noted that the government would be guilty of a ‘dereliction of duty’ and a ‘grave injustice’ if it adopted the proposals, which were set to be discussed at an all party parliamentary group meeting this week.
Mr Wade was said to have told stakeholders in the last few weeks that private finance ‘is the only solution as the Treasury has made a definitive statement that it will not provide a penny more in additional grants for removal’, having already provided £1.6bn in cladding funding. The news outlet pointed out however that the overall costs of the crisis ‘are projected to rise above’ £16bn.
Should the proposals be adopted, ‘it would be possible to seek additional funds from future parliaments, developers or other entities to reduce the size of the loans’, and Mr Wade is understood to have been ‘working on an assumption that the average bill’ for leaseholders is about £20,000 each, so repayments over 30 years could be around £800 per year. Many blocks however face ‘far higher’ bills, the news outlet added.
If the proposals were adopted, the government would ‘finally abandon its position that leaseholders should not be required to foot the bill for the cladding crisis’, despite Prime Minister Boris Johnson stating in parliament this week that ‘I do not want to see leaseholders being forced to pay for the remediation, and I can assure my honourable friend that we are looking now urgently – before the expiry of the current arrangements – at what we can do to take them forward and support leaseholders who are in a very unfair position’.
End Our Cladding Scandal’s Giles Grover, himself an affected leaseholder, stated: ‘Let us be clear: people have got rich out of this failure. Big builders focused on profits over safety and they, and their shareholders, have made vast amounts by selling us defective homes. We are blameless consumers who have had our lives ruined through simply following the British dream of homeownership and taking a first step on the property ladder.
‘We are already paying unaffordable costs for interim measures, such as the often ineffective waking watch, and soaring insurance costs. If the government pushes ahead with its deeply unfair plans to force us, the only innocent parties, to pick up the bill for this crisis, it will send a clear message that it is not on the side of homeowners and is solely on the side of big developers. The industry will know, once again, that it will not be made to pay for its failures.
‘It would be a clear dereliction of duty by this government if we are shackled by long-term hefty loans. We will not stop fighting this clear and grave injustice.’
Inside Housing noted that while the government has ‘repeatedly called’ on block owners to ‘do the right thing’, recent months have ‘seen little progress on this front’, with freeholders and housing associations issuing Section 20 notices to leaseholders for costs in hundreds of buildings nationwide. While successful bidders to the building safety fund are being contacted ahead of the end of year deadline, funds will ‘cover only’ 400 of 2,784 private buildings that have registered.
This is in addition to ‘hundreds’ in the social housing sector, and will only fund cladding works, with ‘huge sums required to fix other defects’. An MHCLG spokesperson said: ‘As we have previously said, we are considering a range of options to fund future remediation work and this work is ongoing - no decisions have been taken. We continue to work with a range of stakeholders including leaseholders and the finance industry, we will set out further detail in due course.’