According to research from the Department of Levelling Up, Housing and Communities (DLUHC), there are an estimated 97,000 and 138,000 leasehold dwellings requiring work due to “external wall life-safety fire risks”.
In January this year, the DLUHC said leaseholders in mid-rise buildings would not have to pay for the remediation of unsafe cladding and it would seek funding from building developers.
The cost to the private sector could be around £2.4bn and £4.1bn, with between 75,000 and 106,000 leasehold dwellings in mid-rise private sector buildings potentially requiring work on external walls.
For mid-rise buildings in the social sector, between 22,000 and 32,000 leasehold dwellings might require work and the cost is estimated to be between £700m and £1.2bn.
The report added that the costs of full remediation for leasehold dwellings in mid-rise buildings in England could range from £2.9bn and £4.9bn, partial remediation could cost £200m to £400m and mitigation could be £40m to £60m.
It said that around 83,000 to 118,000 leasehold dwellings in mid-rise residential buildings needed full remediation. Those needing partial remediation ranged between 8,400 and 13,000 and mitigation came between 5,100 and 7,500.
There was also variation by height, with 42,000 to 61,000 leaseholder dwellings between 11 and 13 metres needing work, costing between £1.4bn and £2.4bn.
For 14 to 18 metres, the number of leaseholder dwellings is between 55,000 and 77,000 and the cost is estimated at £1.7bn and £2.9bn.
Nearly 9,000 mid-rise residential buildings need work
Around nine to 11 per cent, or between 6,220 and 8,890 mid-rise residential buildings, require works to mitigate “life-safety fire risks” from external wall systems, such as cladding.
The report continued that 84 per cent would require full remediation of building facades whilst 10 per cent would require partial remediation and six per cent would only need “mitigation measures”.
Within that, the report said that over half, 55 per cent were between 11 and 13 metres, whilst 45 per cent came into the 14 to 18 metre band.
It added that a bigger proportion of buildings at the 14 to 18 metre band required work, 15 to 19 per cent, compared to buildings at 11 to 13 metres, which comprise seven to eight per cent.
Nearly all, 94 per cent, of 14 to 18 metres buildings require full remediation, three per cent only need partial remediation and three per cent just need remediation.
For 11 to 13 metres, 76 per cent need full remediation, 16 per cent require partial remediation and eight per cent only need mitigation measures.
Around half of the buildings are located outside of London, and 12 to 15 per cent of buildings outside of the capital require full remediation. In London this is seven to nine per cent.
Average cost of remediation
The report added that the mean cost per building for external wall remediation is between £640,000 and £790,000.
For partial remediation, the mean cost is £380,000 and £470,000 and building mitigation measures is around £120,000.
The report added that taller buildings would be more expensive to remediate as they would “require more resources”.
The mean cost for full remediation for buildings between 14 and 18 metres comes to £750,000 and £920,000, whilst for buildings between 11 and 13 metres it is pegged between £540,000 and £660,000.
For partial remediation, the estimated mean cost for buildings between 14 and 18 metres is £560,000 and £680,000. This is compared to £360,000 and £440,000 for buildings between 11 and 13 metre buildings.
The Financial Regulatory Authority (FCA) wrote to the government last week, with an interim review of its investigation. In January, Gove told the FCA to examine why some leaseholders in high and medium rise properties faced yearly increases to their buildings insurance.
The regulator said it would focus on identifying potential harms to residential leaseholders and work with the government to seek ways to reduce rising premiums.
In the FCA’s review, it said building safety concerns which went beyond flammable cladding may be the cause for rising costs. It said this “may be making individual insurers more risk averse”.
It added its data gathering was in its early stages, but so far it found leaseholders tended to pay insurance costs to freeholders under their contract rather than directly to the insurer. Additionally, it said portfolio underwriting was common in the market, meaning a single policy tended to cover multiple buildings. The FCA said this made it hard to identify the direct impacts on residential leaseholders.
The potential harms revealed by the FCA included the fact that some insurers had withdrawn from the market, limiting competition and the pressure to lower prices.
Furthermore, some insurers avoided bidding for new business with multi-occupancy blocks and when they did, high premiums were often charged. The FCA said it was unclear whether this was reflective of actual risks, inaccurate assessments or a strong aversion to risk.
It also said insurance premiums for buildings with no flammable cladding were still high due to broader issues with building quality, like inadequate plumbing systems.
Additionally, the FCA found freeholders, property managing agents and insurance brokers may be choosing insurance policies which maximised their own remuneration, rather than the policy that offers the best value for the leaseholders.
It also said there was a “lack of pressure” on freeholders, property managing agents and insurance brokers to search for cheaper policies. It said this was because they knew costs could be recovered from leaseholders, and leaseholders were unlikely to challenge policies or existing commercial arrangements.
The review also said switching costs and long onboarding processes may deter policyholders from moving onto a new plan.
In his letter to Sheldon Mills, executive director, consumers and competition at the FCA, Gove wrote: “It is neither fair nor decent that innocent leaseholders should be landed with bills they cannot afford as a result of problems they did not cause.”
He also asked to understand what could be done to encourage new entrants into the market to improve competition.
Gove added: “I am keen to review how all actors in the insurance marketplace have contributed to high premiums for leaseholders.
“The findings of the FCA review will be critical to developing a full understanding of the issues in the buildings insurance market. It is important that any recommendations consider all routes, whether enacted by the regulator, government or industry, to ensure leaseholders get the value for money they deserve.
“I request that you continue to consult with the Competition and Markets Authority, particularly as remedies for the current market environment are considered.
In a trading statement, the housebuilder noted that demand from buyers remains strong, with the recent increase in interest rates from the Bank of England failing to impact customer appetite.
In addition it noted “the mortgage market remains competitive, with good availability of low-cost fixed rate mortgage products”.
Taylor Wimpey confirmed that its current total order book value stands at around £2.97bn, compared to £2.8bn in the same period last year. This represents just shy of 11,000 homes, which is on a par with the figure from last year.
The builder noted that it will pay an extra £80m for the removal of cladding from high rise buildings, which brings the total it has so far provided to around £245m. It emphasised its belief that this remains “an industry-wide issue involving many types of organisations, and therefore needs an industry-wide solution”.
Taylor Wimpey noted that inflation is pushing up the cost of delivering homes, with build cost inflation currently running at around six per cent. However, it suggested that this is being more than offset by the rate of house price growth.
The housebuilder confirmed that it now has around 87,000 plots in its short-term landbank, an increase from 82,000 in the same period last year. The value of the land on its balance sheet has also increased markedly over the period, from £2.9bn to £3.4bn.
Jennie Daly, the designate chief executive for Taylor Wimpey, said: “Trading has continued to be strong, supported by a healthy market backdrop. We have also continued to make good progress against our strategic priorities, including driving growth in operating profit margin and outlet openings. Demand for our homes remains strong, with the business well positioned to deliver further progress in 2022 and beyond.”
The Lords proposed to set out the meaning of “relevant building” to define which properties leaseholder protections applied to. Lords entered a clause for this to mean any self-contained building, or self-contained part of a building, in England that contains at least two dwellings.
This was amended by MPs to refer to buildings at least 11 metres, or five storeys high.
During the Parliamentary debate on Wednesday, Stuart Andrew, minister of state for housing, said the government did not agree with extending protections to buildings below 11 metres.
He added: “The department is aware of a handful of low-rise buildings where freeholders have been commissioning such works and we are addressing such buildings on a case-by-case basis, but we must restore proportionality to the system.
“There is no systematic risk of fire with buildings below 11 metres. Low-rise buildings are therefore unlikely to need costly remediation to make them safe. Lower-cost mitigations such as fire alarms are likely to be far more appropriate and proportionate.”
MP Stephen Doughty asked what advice would be given to leaseholders who felt they had been wrongfully charged for unnecessary works.
Andrew replied: “Freeholders and landlords should not be commissioning costly remediation in buildings below 11 metres except in exceptional circumstances, which is where there is no more proportionate option available. They certainly should not be pointing to old EWS assessments to justify those costs.
“Given the small number of buildings involved, a blanket legislative intervention bringing hundreds of thousands more buildings into scope to deal with an issue affecting just a handful of buildings would be entirely disproportionate.”
MP Hilary Benn then asked why shorter buildings would not be included, if the government acknowledged there was no problem with properties below 11 metres.
Andrew said the government wanted to make sure it got it right and would continue to assess the situation.
Some 318 MPs voted for the government’s update to not include buildings under 11 metres.
Other amendments
Most of the amendments made by Lords were either agreed to or changed.
The only amendment which was wholly rejected by MPs was a proposal requiring the Building Safety Regulator to carry out a series of safety reviews within a certain timeframe.
The Lords initially inserted a clause stating that within two years of the bill coming into force, the Building Safety Regulator should conduct and publish an assessment of the benefits and costs to measures such as fire suppression provisions and the safety or stairwells and ramps in residential buildings.
This was changed to increase the time to three years.
Andrew said the change provided “clearer drafting and a more practical and pragmatic approach”, and reflected the time needed to carry out these reviews alongside the regulator’s other functions.
The Bill will return to the House of Lords on 26 April.
As part of the agreement, the firm has also withdrawn its buildings from the Building Safety Fund and ACM (aluminium composite material) Funds.
It said it expected the incremental cost to remediate buildings taller than 11 metres to be in the range of £350m to £400m. This will be accounted for in its annualised operating costs, which will be expensed as incurred through administrative expenses. This figure will increase by £10m to £20m a year on it’s financial records, starting 1 July 2022, the beginning of Barratt’s financial year.
Barratt said this decision reflected four years of “constructive engagement” with the government to address these issues, as it aligned with its belief that leaseholders should not have to pay for works caused by the design, construction or refurbishment of buildings.
Its statement said: “Government policy has evolved and been updated frequently in the intervening period while surveyors, lenders and insurers have also made changes to their policies and procedures for dealing with multi-storey, multi-occupancy buildings against this uncertain and changing backdrop.
“Investigations by freeholders and developers of buildings added further complexity and uncertainty. Regrettably, leaseholders have been, and continue to be, adversely impacted; often facing significant charges for remediation, interim safety measures and increased insurance premiums.”
“All of our buildings, including the cladding and external wall systems used, were signed off by approved inspectors as compliant with the relevant Building Regulations in place when they were built,” it added.
Barratt said it would include the remediation costs in its half-year results. It also plans to “seek recoveries” from other parties involved in the development of affected properties who may have a responsibility in sharing the costs.
However, it said “this recovery is uncertain and therefore has not been included in our expected incremental costs”.
Moving forward, the firm will cough up around £400m over the next 10 years through the Residential Property Developer Tax to help fund remediation of buildings built or refurbished by other organisations.
David Thomas, chief executive of Barratt Developments, said: “We have always been clear that we do not believe leaseholders should pay for remediation of their homes and are committed to helping affected leaseholders living in the buildings we developed.
“Through constructive engagement between industry and government, a proportionate and sensible approach has been found and we look forward to completing the remediation process as quickly as possible.”
He added: “As government continues to work through policy developments in this area, it is vital that it considers the burden of this taxation on UK housebuilders and how it might impact the ongoing construction of homes that the UK needs.”
Yesterday, Crest Nicholson, Persimmon, Berkeley Homes and Taylor Wimpey signed up to the pledge.
This follows this morning’s announcement that Crest Nicholson was the first developer to sign the agreement which had a deadline of 5 April.
The pledge requires developers to be financially responsible to fix unsafe cladding on high-rise buildings over 11 metres tall built in the 30 years before today.
Taylor Wimpey said it had “constructively contributed” to the government’s discussions on fire safety so far. The pledge means the developer will extend its coverage to remediate existing buildings constructed within the last 20 years, to include those developed since 1992.
The developer said it also would reimburse the money it has already received through the Building Safety Fund. It expects it will have to provide a further £80m to remediate properties, bringing its overall costs to around £245m.
Last year, the builder announced it had set aside £125m to remove unsafe cladding from its properties.
Pete Redfern, chief executive of Taylor Wimpey, said: “Today we confirm that Taylor Wimpey has signed up to the government’s fire safety Pledge for Developers. Our priority has been to ensure that customers in Taylor Wimpey buildings have a solution to cladding remediation.
“We took early and proactive action, committing significant funding and resources to address fire safety and cladding issues on all Taylor Wimpey affected apartment buildings.”
Berkeley said following discussions with the government, it could confirm it had also signed the agreement.
Persimmon previously set aside £75m to fix cladding and said it would not claim any money from the Building Safety Fund.
It said of the 33 developments identified as needing remediation, four had now obtained EWS1 forms.
Dean Finch, group chief executive of Persimmon, said: “Over a year ago we said that leaseholders in multi-storey buildings Persimmon constructed should not have to pay for the remediation of cladding and fire related issues. We are pleased to reaffirm this commitment today and sign the government’s Developer Pledge.
“We made this commitment last year as we believed it was not only fair for leaseholders but also the right thing to do as one of the country’s leading homebuilders. We are pleased that we were able to work constructively with the government to secure this agreement.”
The developer is the first to sign the pledge, which requires it to fund the costs to remove unsafe cladding from high-rise buildings between 11 and 18 metres tall.
In January, Secretary of State for Levelling Up, Housing and Communities, Michael Gove, gave developers until March to provide a solution for the cladding crisis. This was later extended to 5 April following discussions between the government and developers.
Gove warned firms that the government could utilise legal routes to make developers pay to fix cladding on buildings, and threatened companies with wider commercial consequences.
Crest Nicholson said in its announcement: “Failing to agree to these new guidelines would carry further consequences, implemented by Department for Levelling Up, Housing and Communities (DLHUC), that would impact the group’s ability to operate and trade normally within the housing market.
“These restrictions will be enacted in law through proposed amendments to the Building Safety Bill which is currently passing through Parliament.”
The developer said it believed signing the pledge was in its best interests and would support those living in affected buildings.
As a result of signing the pledge, the group will need to record a further exceptional charge in its financial statements, it said. It also promised to “work at speed” to refine the estimated costs. Crest Nicholson added that it was considering whether further regulatory approvals would be needed in respect of the proposed charge.
The developer said that since the Grenfell fire in 2017 it had “acted swiftly” to identify and remedy its legacy buildings, and has incurred cumulative net charges of £47.8m since the year ended 31 October 2019.
It is also contributing to the Residential Property Developer Tax (RPDT), effective from 1 April 2022, to support the remediation of all affected buildings taller than 18 metres in the UK.
The group said it did not expect the costs to present a risk to current or future operations, given its financial position and trading performance.
Its most recent financial results showed it ended the year with net cash of £252.8m. An update is due 14 June 2022.
The Spring Statement is due at around midday tomorrow and the Office for Budget Responsibility will release its economic and fiscal forecasts.
In the statement, Sunak typically provides an update on the performance of the economy and usually does not include major tax or spending changes of the budget.
However, the Chancellor is facing increased pressure to fight the rising cost of living, with financial adviser Hargeaves Lansdown calling on the government to delay the proposed 1.25 per cent hike in National Insurance.
It also advocated an increase in Universal Credit from 2.1 per cent already reserved and a reduction to fuel duty and/or VAT.
Ahead of the statement, Mortgage Solutions asked the mortgage sector what it would do if they were Chancellor, what they think he would announce and what he could do to further support the market.
What would you do if you were Chancellor?
Jonathan Stinton, head of intermediary relationships at Coventry for intermediaries, said if he was Chancellor he would put “green issues on the top of [his] agenda”.
He said he would “fulfill the promises” in the Conservative manifesto around the Home Upgrade Grant, which aims to help low income household in worse performing off-gas-grid homes in England to become more energy efficient.
He said he would further back the Social Housing Decarbonisation fund, which was allocated £800m last year.
Stinton said he would also alleviate some of the burden posed by National Insurance increase and rising energy costs. He suggested that one way to relieve the cost of living could be a temporary fuel duty break.
Vikki Jefferies, proposition director of the Primis Mortgage Network, said the focus should be on supporting households in what is “financially one of the toughest years many will have ever seen in a long time”.
She added: “The squeeze individuals are seeing on their outgoings is unprecedented and it effects all kinds of borrowers, so helping them weather this uncertain time is vital. Putting in place policies to help families meet the rising cost of living by freezing duties, cutting the tax rate in universal credit, and increasing the national living wage will certainly help.
“The previous focus the Chancellor had on the housing market during the pandemic really helped the sector, so a continued emphasis on it would be very welcomed.”
What do you think Rishi Sunak will announce?
Stinton said it was unlikely Sunak would make any “drastic changes”, but it would be interesting if he took the opportunity to reaffirm the commitment to the green agenda.
He added that there had been debate as to whether the Chancellor would progress with the National Insurance hike. However, he thought it would be unlikely for the government to make a policy U-turn so expected the rise to go ahead.
Jefferies agreed and said Sunak would probably have a “large focus” on green initiatives, partially due to the UK’s attempt to reduce the use of Russian oil.
She added: “We are likely to see more investment in renewable power, but this could be announced separately to the Spring budget. We would welcome more support for green initiatives in the housing sector too.”
She expected Sunak to focus on relief and support for low income households to help them manage increased financial strain.
She said: “Inflation is at its highest levels in the last 30 years and interest rates are rising. It’s likely that the Chancellor’s hands will be tied in terms of doing anything truly radical, but he may look to make the energy bill rebate more generous.
“That would go some way to helping families struggling with rising household costs.”
Zarah Gulfraz, sales manager at Mojo Mortgages, said addressing the cost of living crisis was the “best thing” Sunak could do to support the mortgage market as this would have an impact on homeowners and first-time buyers.
However, she also did not expect any major announcements for the sector as the return to normal stamp duty rates “did little to slow the housing market” so “any further intervention would be a surprise”.
Chris Sykes, associate director and mortgage consultant at Private Finance, said this year’s Spring statement was another “exercise in crisis management” like last year.
“This statement will therefore focus on taking the pressure off household finances as much as possible. This will inadvertently help prospective purchasers and borrowers, as any help in this regard will have an impact on affordability, which for many people is becoming increasingly constrained especially given the quickly rising interest rate environment,” he added.
He also predicted there would be no stimulants for the mortgage and housing sectors but coveted an incentive to “help older homeowners downsize, freeing up housing stock for younger families looking to move up the ladder and helping older homeowners reduce their bills”.
Additionally, he suggested a stamp duty incentive to encourage the purchase of sustainable homes and reward retrofitting.
What other changes should be made to support the mortgage market?
Stinton said he would like to see incentives for borrowers to accelerate the green agenda.
He said: “As a nation, we still rely on imported oil and gas, but the introduction of subsidies for improving energy efficiency and making green home improvements could be a significant step in the right direction to independence from fossil fuels.
“With the changing EPC regulation coming into force, more incentives for landlords to improve the energy ratings of the properties in their buy-to-let portfolios will ultimately support the private rental sector. It could both reduce the likelihood of landlords passing costs to tenants and also help to reduce the living costs of those in rented accommodation.”
Jefferies agreed that more needed to be done to support homeowners wanting to improve their EPC rating.
She said: “With many suggesting that the measures to do so are too expensive to even consider, more in the way of government support is needed. The deadlines set to reach an average EPC rating of C will creep up on us quickly, so the more that can be done now to help homeowners the better.”
Stinton added that tax exemptions for homeowners and landlords could also work and suggested a reform of stamp duty to link it to sustainable home upgrades where new homeowners who made changes in the first few years of purchase would get a portion of it back.
He said there should also be an emphasis on urban regeneration and social housing to help the property shortage.
“This could be achieved, for example, by converting unused office buildings into homes which could help to rejuvenate town and city centres,” Stinton noted.
He added that there should be a focus on housing affordability, with one example he cited was the introduction of stamp duty relief for downsizers similar to that offered to first-time buyers.
“This would help to free up more properties for growing families to move up the ladder, and thereby provide more choice of first homes for those looking to step into homeownership,” Stinton said.
Jefferies added that she wanted to see more options available to replace the Help to Buy scheme, which is due to expire next year.
Mark Harris, chief executive of SPF Private Clients, said the Chancellor should prioritise “sorting out the cladding crisis once and for all”.
He added: “For far too long, far too many flat owners have been trapped, unable to sell or move, through no fault of their own. The bills for proposed remedial work which some leaseholders have received are eye-watering and it’s a disgrace that they are expected to foot the bill.”
Gulfraz agreed this should be addressed as she said cladding had become a “pressing issue”.
Harris said affordability would only become “more of an issue” as property price growth continues to outpace wages.
“It is hugely worrying that capital cities such as London are becoming beyond the means of your average first-time buyer, unless they have significant financial help from the Bank of Mum and Dad,” he said.
He added that removing the stress test for mortgage borrowers would help, but as first-time buyers were the “lifeblood of the market”, stamp duty reductions and other incentives would be “necessary to boost the sector”.
Harris continued that a “detailed review” of the stamp duty system would be welcome to evaluate how well it was working and whether large family homes could be freed up.
He explained that stamp duty costs were a barrier for those moving up the ladder, those downsizing, and could put off elderly people from doing so.
“The stamp duty holiday proved to be such a boost for the housing market; surely the Chancellor needs to look at it again?” he said.
Brian Murphy, head of lending at Mortgage Advice Bureau, said stamp duty had been a “major focal part” of the UK housing market for years.
He said in hindsight the housing market was already in “good health” despite the pandemic and the stimulus of the stamp duty holiday resulted in a significant increase in housing transactions and stamp duty revenue relative to previous years.
Murphy added: “This appears to demonstrate that the structure of the current stamp duty system is not fit for purpose as by suspending parts of it for a finite period has clearly motivated more buyers to move but not at the expense of the Treasury coffers.
“This suggests that now is the perfect time to consider a route and branch review of the current stamp duty system, to encourage people that want to move to do so without fear of taxation issues that have for so long held the market back.”
