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Cladding remediation fund for mid-rise buildings starts to take shape

Charlie Blagbrough, Policy Manager at the BSA

Since the Grenfell fire tragedy in 2017 the market for buying and selling flats has been in something of a state of flux. Uncertainty around which buildings have been constructed using potentially combustible materials has led to concerns around the costs of replacing these materials and whether these bills would fall on leaseholders or prospective buyers, creating potential affordability issues for mortgage borrowers.

The start of 2022 saw Housing Secretary Michael Gove announce a ‘reset’ in the Government’s approach to funding cladding remediation. Under previous policy, Government finance was only available for buildings over 18 metres in height and under a strict set of criteria. However, mid-rise buildings between 11-18 metres will now also be brought into funding arrangements, with major UK housebuilders asked to contribute towards fixing the problem.

The major unknown around this announcement has centred on whether housebuilders would agree to commit this extra money. This kicked off a set of tense negotiations. These talks appear to have now reached a conclusion, at least for a first round of commitments, with 35 developers signing up to a pledge to pay towards fixing unsafe cladding on buildings they have played a role in developing over the past 30 years. They have also committed in the pledge not to call on the Building Safety Fund.

The total amount of contributions is estimated at around £2 billion. Barratt Developments have estimated £350 - £400m in extra costs while Redrow have pledged almost £200m. Government is said to have approached over 50 housebuilders so there may still be further announcements.

There has been less progress in securing funds from cladding manufacturers. The Secretary of State also wrote to the Construction Products Association earlier in the year asking for contributions to the costs of remediating cladding and insulation products their members had manufactured but there has been little further news.

With these announcements from the major housebuilders, the package of support for leaseholders affected by fire safety issues seems to be taking shape. Alongside the fund, the Building Safety Bill is expected to receive Royal Assent shortly. This will provide greater protection against non-cladding costs such as fixing fire breaks or compartmentation. The Building Safety Levy is also set to be extended to raise an additional £3bn which will be used to fund remediation of ‘orphan’ buildings where the developer cannot be identified, for example where it was developed by a Special Purpose Vehicle which has now been dissolved.

For mortgage lenders, the news of more support for leaseholders is very welcome. The BSA has long argued that costs should not fall on leaseholders, who are not responsible for creating these issues in the first place. Once the funding is in place this should enable lenders to have greater confidence that fire safety issues will ultimately be fixed, instilling greater confidence in the market and getting transactions moving again.

Posted by Katie Wise on 28 April 2022