The UK government is confronting a looming crisis in building safety, with warnings of a multibillion-pound bill to rescue up to 1.7 million potential victims in the aftermath of the Grenfell Tower disaster. Unless addressed, this crisis could lead to innocent people losing their homes and lenders facing substantial losses due to forfeited leases.
The crisis stems from flaws in the government’s leaseholder protection legislation, which was introduced last year to address issues arising from the Grenfell fire in 2017. However, this legislation leaves three groups of people unprotected: those residing in low-rise flats, those who have enfranchised, and those who own more than three flats.
As a result, a significant number of homeowners—up to 1.7 million—remain in an uncertain position until all buildings are assessed for fire safety issues. The lack of clarity regarding affected buildings has impacted the entire flat market, leaving those in unsafe buildings unable to sell their flats or facing the burden of unaffordable costs for necessary safety remediation, including addressing Grenfell-type cladding on low-rise blocks. Some may even be living in potentially dangerous flats that require immediate safety measures.
The government’s partial leaseholder protections, introduced last year, have created a problematic three-tier flat market: those fully protected, those partially protected, and those with no protection. This has complicated conveyancing processes, as professionals must determine a buyer’s potential liability based on complex information about the seller and building owner. Consequently, a significant percentage of conveyancers are declining new instructions on flats, potentially stalling a substantial portion of the UK housing market.
The situation may worsen next year when new banking rules, following “Basel 3.1” standards, come into effect. These rules will compel lenders to revalue loans in cases where there is a likely permanent reduction in a property’s value. Given the current legislation’s creation of a three-tier flat market, widespread revaluations appear inevitable, potentially leading to hardship for partially or wholly unprotected leaseholders and financial losses for banks.
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. The amendment proposes making developers or lead contractors permanently liable for building defects at the time of construction or establishing a building industry levy to fund remediation if the builder no longer exists. This amendment aims to address the crisis, protect the 1.7 million homeowners excluded by current legislation, and eliminate the three-tier flat market.
The amendment enjoys wide support, with endorsements from over 48,000 people, the National Residential Landlords Association, and Property Mark, which represents 17,500 property agents. Notably, it has also garnered support from former state premier of Victoria, Australia, Ted Baillieu, who praises it as a comprehensive and equitable solution.
If the amendment is rejected, the chancellor may face the difficult choice of residential valuation write-downs, people losing their homes, and negative repercussions for the banking system, or the government may have to step in and bail out up to 1.7 million people while contending with the problematic three-tier flat market.
For more information on the Earl of Lytton’s amendment, please visit www.buildingsafetyscheme.org.