Jeremy Hunt has received a warning regarding the potential multi-billion pound cost to the government for rescuing as many as 1.7 million individuals affected by the building safety crisis following the Grenfell tragedy. Failure to take action could result in numerous innocent people losing their homes, and lenders facing substantial losses due to forfeited leases.
The crisis stems from the government’s leaseholder protection legislation, introduced last year to address issues arising from the 2017 Grenfell fire. However, this legislation excludes three groups: residents in low-rise flats, those who have enfranchised, and those who own more than three flats.
Until all buildings are assessed for fire safety concerns, an estimated 1.7 million homeowners are left in a state of uncertainty. Not all buildings will have issues, but the entire flat market has been affected, as the affected buildings are yet to be identified. Those residing in unsafe buildings face challenges such as owning unsellable flats or being burdened with significant remediation costs, including addressing Grenfell-type cladding on low-rise structures. There is also the potential risk of residing in hazardous flats requiring urgent safety improvements.
The government’s partial leaseholder protections implemented last year created a problematic three-tier flat market: fully protected, partially protected, and not protected at all. This has complicated conveyancing processes, making it difficult for conveyancers to obtain professional indemnity insurance. This situation risks stalling a significant portion of the UK housing market, with a growing number of conveyancers declining new instructions for flats.
The crisis could escalate further next year when new banking rules come into effect. The Bank of England is expected to implement “Basel 3.1” standards from the beginning of 2025. These standards will require lenders to revalue loans if there is “an event that results in a likely permanent reduction in the property’s value.” With the current legislation causing a three-tier flat market, widespread revaluations appear inevitable. Leaseholders who lack protection may suffer, and banks that provided loans may find themselves dealing with bad debts that cannot be repaid.
An amendment to the government’s bill, tabled by the Earl of Lytton, a crossbench peer, is scheduled for debate in the House of Lords on the 13th of September. This amendment seeks to hold developers or lead contractors permanently liable for building defects at the time of construction or recover from a broad building industry levy if the builder is no longer in existence. It aims to fund the remediation of all unsafe flats, safeguarding the 1.7 million currently excluded homeowners and eliminating the three-tier flat market.
The amendment enjoys wide support, with backing from 48,000 people, the National Residential Landlords Association, and Property Mark, representing 17,500 property agents. It is also supported by Ted Baillieu, former state premier of Victoria, Australia, who states that Lord Lytton’s Building Safety Remediation Scheme has the potential to revolutionise the building industry and is the most comprehensive and equitable solution.
If the amendment is rejected next week, the Chancellor faces the difficult choice of residential valuation write-downs, potential homelessness, and negative repercussions for the banking system, or the government stepping in to bail out up to 1.7 million people while maintaining the problematic three-tier flat market.
To learn more about the Earl of Lytton’s amendment, please visit www.buildingsafetyscheme.org.
To sign the petition, click here. You can watch a video from the petition’s founder, Jake, to find out more here.
