HCLG Committee Questions Lord Greenhalgh on Forced Loans and Non-Cladding Costs

When Lord Greenhalgh (Minister for Building Safety) and Richard Goodman (Director-General for Building Safety at MHCLG) appeared before the HCLG Committee on 8th March, it was already 1,363 days since the Grenfell tragedy. Forty-five months. Almost four years. Yet there was still no sign of urgency in solving the building safety crisis for the thousands of leaseholders who remain trapped.

Leaseholders frequently tell us they have heard nothing since their building applied to the Building Safety Fund last summer. When asked why the pace of non-ACM remediation funding has been so slow (only £160m of the £1bn fund has been allocated so far), Lord Greenhalgh said the delays were due to applicants, as information is missing or insufficient in about half of all registrations.

The Minister also said he didn’t recognise the capacity constraints in the construction industry that ARMA had recently described to the Committee, which could lead to remediation work taking as long as a decade.

However, we all seem to agree that when tackling a crisis on this scale it is essential to prioritise work according to risk. We were pleased to learn that – more than a year after the Secretary of State said he had commissioned a “sophisticated matrix of risk prioritisation” – experts are finally developing a Publicly Available Specification (PAS) to categorise buildings as high, medium or low risk. Unfortunately, we heard that it will still be several months until it is ready for consultation.

We wonder what it will take – how many bankruptcies or people losing their homes, how many serious fires – before the Government feels a sense of urgency.

It’s not just cladding!
We all know that dangerous cladding is only one aspect of the wider building safety crisis, but leaseholders in buildings of all heights are still on the hook for remediating other serious defects, which can cost tens of thousands of pounds per flat.

It was clarified that other defects – such as insulation, cavity barriers or balconies – can be covered by government funding, if they are ‘integral’ to the external cladding system. However, there has been no estimate of how often these are integral or not. In any case, serious internal defects are not covered, such as a lack of compartmentation – which affects more than half the leaseholders caught up in the cladding scandal.

The Committee was, quite rightly, confused about what will happen if the cost of remediating other defects falls to leaseholders and they cannot pay – because a clause in the contract says funds must be in place for the entire project before cladding remediation can go ahead. Lord Greenhalgh and his official repeatedly
brushed off these concerns by saying it would only be a problem if leaseholders “elect” to fix other serious defects, at the same time as cladding.

“It is a matter for leaseholders to decide whether they want to expand the scope. They are not being forced to; it is an opt-in, they are not being compelled to do that”, said Lord Greenhalgh.

Surely both men know enough about their brief to realise leaseholders don’t have the power to “elect” to carry out work, on a building they don’t own? Leaseholders are simply on the receiving end of charges being passed on for that work.

They also know that non-cladding remediation is not a “choice” being made on a casual whim. Unless fire engineers, fire and rescue services, the NFCC, insurers, and mortgage providers all agree that this work is non-essential, then carrying out non-cladding remediation work will never be optional. The alternative is
leaseholders being compelled to pay a fortune, indefinitely, for waking watch and inflated insurance premiums – and being stuck in unsellable homes valued at zero. That is not an “option”.

Cladding loans are still a work-in-progress
Although cladding loans were announced last month, there is still no estimate of how many mid-rise blocks (between 11-18m) will need remediation, and no timetable in mind for when they will be made safe.

The Committee heard that MHCLG has assumed dangerous cladding exists on the same proportion of midrise blocks as high-rise – they estimate 15% – but the need for remediation would be lower, as alternative measures to mitigate risk may be more appropriate than fixing the defect.

MHCLG does not seem to have taken into account that Building Regulations permit the use of combustible materials on blocks shorter than 18m – so the prevalence is likely to be much higher than on high-rise. It is also bizarre, and worrying, that the Government is proposing a scheme to remediate combustible materials on mid-rise buildings but still hasn’t confirmed a proposed ban on combustibles on new builds of this height.

The main thing the Committee learned about cladding loans is that no one can say yet how they might work in practice. Who is the legal entity that will hold responsibility for the loan? How long will loans be payable for? What will be the total cost of the loan?

Lord Greenhalgh could only say that loans would be “heavily subsidised,” and leaseholders would only be making a “small contribution” to the total cost of remediation – although it is hard to believe the Treasury signed off the scheme’s announcement without any estimate of their exposure. Various options are being
looked at and the details will be published “in due course”.

The burden of cladding loans was also presented by Richard Goodman as a “net saving” compared to the average cost for interim safety measures like waking watch; but this is irrelevant, since leaseholders should not be responsible for paying anything for these interim measures either.

It was left to Florence Eshalomi MP to surmise that no impact assessment has been carried out yet.

Affected leaseholders often bought their homes through affordable housing schemes, most are on low or middle incomes, and many have already turned to borrowing or decimated their savings to pay for interim safety measures. For some people, the impact of forced loans will mean bankruptcy if they cannot sustain the monthly payments.

The Committee recently heard from Leasehold Knowledge Partnership that when a leaseholder tries to sell their property, the outstanding value of any cladding loan will simply be knocked off the offer price. We agree. Some leaseholders will face negative equity as a result.

Richard Goodman said loans would help restore the market for mid-rise flats because lenders would be able to “price in, with some certainty, what the overall impact on the property value might be and on the affordability assessment for somebody seeking a mortgage”. It was notable that he spoke about “impairment of the asset”; MHCLG are not denying that leaseholders will lose value off their homes as a result of forced cladding loans.

It is also clear that MHCLG has not yet created any certainty about the future costs leaseholders may face. It remains uncertain whether the enormous costs of non-cladding remediation will fall on leaseholders, or how long they will need to pay for sky-high interim costs. Until this uncertainty is resolved, there still won’t be any reassurance for lenders or potential buyers.

Funding for remediation should reflect where blame lies
Conservative MP Ben Everitt asked the question we all want to know: Why has the developer levy not been set at more than £2bn over 10 years, since funding should reflect where the blame lies, and the likely costs of remediation are around £15bn?

Lord Greenhalgh said they are putting pressure on individual developers to go further. However, the amounts ‘pledged’ by a handful of big developers are small in comparison to the total costs of remediation, dwarfed by their annual profits and dividends, and full of caveats. The same developers will receive £30bn
of taxpayer funds through Help to Buy.

We also learned that the industry levy and tax are likely to be offset against the £5bn of funding that has been committed to date, rather than being additional funding as we had hoped.

The Minister treated leaseholders to the usual warm words about being victims of shoddy workmanship, while noting that developers and construction product manufacturers have profited very nicely out of our unsafe homes. But he also suggested that leaseholders should have “the ability to get redress” themselves,
in many cases. This is naïve at best.

Warranties and leasehold law rarely provide a route for residents to claim against those responsible. This is a systemic, nationwide issue – which is urgent to resolve. That is why the Government must step in.

Voters support more government funding to solve the building safety crisis
Lord Greenhalgh told the Committee that we must remember those taxpayers who are ‘contributing’ to building safety even though they will never have the opportunity to own a home. This echoed the tactic of Chris Pincher in a recent adjournment debate, when he warned that funding for building safety should not
“unfairly burden taxpayers, many of whom are not homeowners themselves. They are the Covid nurses doing a double shift and the shelf stackers in Tesco”.

Strangely, we never seem to hear the Government evoking these kinds of arguments when they allocate billions of pounds of taxpayer money to Stamp Duty holidays or Help to Buy schemes.

Divisively pitting leaseholders against taxpayers is also a false argument. Our campaign is asking the Government to provide upfront funding – and then take action to recover the money from developers and other responsible parties so that they pay the lion’s share, not taxpayers.

We also wonder why the Government thinks taxpayers would not support increased funding to make homes safe? YouGov polling carried out since the recent funding announcement shows that only 12% of respondents – and only 17% of Conservative voters – would oppose more government funding to bring all
residential buildings in line with current fire safety regulations. If the Government took control of the building safety crisis and funded remediation properly, perhaps it would be a vote winner for them.

Watch the HCLG Committee Meeting with Lord Greenhalgh on 8th March

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