Background
Robert Jenrick announced in February 2021 that there would be a ‘Long Term Loan’ Scheme, which would pay the up front cost of replacing dangerous cladding on buildings between 11 and 18m in height.
Leaseholders in these buildings would then pay back the loan, at a capped rate of £50 per month.
He said that the loans would attract a low interest rate, but did not state what this rate may be.
Since that announcement, there have been no further details published by The Government, nor have there been any further announcements.
The Problems this has Created
The majority of Leaseholders simply do not have the means to pay the tens of thousands of pounds they would need to contribute towards remediation work.
They can’t sell, they can’t re-mortgage and many lenders will not lend against properties with unsafe cladding; so without Government help, remediation projects in these buildings will never happen.
When the Building Safety Fund was announced in March 2020, it specifically excluded any buildings where works had begun prior to the fund being announced; even if all other eligibility criteria was met.
This effectively penalised Leaseholders for progressing these critical safety works in a timely manner.
This adds another complexity to the situation; even if Leaseholders did have the means to pay they are not willing to, due to the uncertainty over retrospective funding applications.
This leaves many thousands of Leaseholders in an impossible position.
Our Analysis of the Proposed Loan Scheme
When the scheme was first announced we discussed the potential pitfalls of the scheme
- It goes against the Government rhetoric of Leaseholders not paying for remediation
- Whilst it is a ‘Government Fund’ we must remember it is the taxpayer who is providing the funding
- At £50 per year it will take decades for loans to be paid back; though there may be an option to settle any balance at the point of sale.
- Who would be responsible for collecting and processing repayments?
- Who is responsible for reporting on and the collection of arrears?
- The administrative costs of the above two points may outweigh the repayments
- It will create a ‘two tiered’ structure on developments – explained in more detail below
Two Tiered Developments
We have identified this as a possible side effect of the loan scheme. Specific to developments with multiple blocks of differing heights which use the same façade materials, which is not uncommon.
We will use one of our ongoing projects as a worked example.
The site consists of 4 blocks. Two are above 18m and are progressing though the BSF (Block 1&2). One block is between 11 & 18m (Block 3) and would be eligible to apply to the Long Term Loan Scheme. One block is below 11m (Block 4).
Blocks 1&2 are due to receive all remediation costs by way of Grant Funding and when the works are complete they will achieve an A1 EWS1 Rating. Leaseholders will not be required to pay anything towards these works.
If the Long Term Loan Scheme goes ahead, and Block 3 has a successful application for funds, Leaseholders will need to pay back £50 per month. This equates to £600 per year. Whilst this may seem nominal; the average service charge for blocks on this development is £1,300 per year. Adding £600 to this significantly increases the Leaseholders of Block 3’s annual outgoings.
In turn, this may mean that flats in Block 3 are less desirable than those in Blocks 1, 2 & 4.
It may also mean that as part of a property transaction, the outstanding loan balance is factored into the sale price; this may mean that the Leaseholders of Block 3 are still losing out.
Leaseholders in Block 4 do not need an EWS1 Form, in line with the RICS Guidance Note issued in April. However, in line with the Fire Safety Bill they have a report stating they have combustible materials on the façade of the building. Just because an EWS1 Form is not required, the safety implications cannot be ignored and remediation will need to take place.
As things stand, the Leaseholders of Block 4 have no ability to apply for funding.
Next Steps
From what we have read and analysed, there is only one real option to break the deadlock and achieve a fair outcome for both affected Leaseholders, and the Taxpayer.
The Government must scrap the Long Term Loan Scheme and height thresholds and provide a comprehensive Building Safety Fund which Leaseholders of all buildings affected by dangerous cladding can apply for.
A risk rating register should be created in conjunction with Fire Engineers similar to an EWS1 but where the high-risk buildings are clearly identified so remediation applications can be prioritised.
A top up scheme backed by the Government should be put in hand to ensure that buildings are fully insured so leaseholders don’t face huge hikes in premiums.
This will also enable lenders to lend and insurers to insure, in turn, allowing the market to start moving and getting lessees out of the Cladding Trap.
We know that this work will take years to resolve, and the government should openly accept that fact and allocate sufficient resources to the Building Safety Fund administration team to enable applications to be dealt with efficiently.
The Government must then look to recover funds from Developers, who have been enjoying record profits for years, at the cost of their customer’s safety.
James Hollins
30th June 2021