Building Safety Crisis Risks Banking Crisis

The Grenfell fire in 2017 exposed a catastrophic failure in fire safety regulation that has left tens of thousands of people living in unsafe buildings. Leaseholders-through no fault of their own-were facing facing bills running into the tens, or even hundreds, of thousands of pounds for the remediation of fire safety defects. The Building Safety Act 2022 provides leaseholders with varying degrees of statutory protection from the costs of cladding and non-cladding remediation costs and interim safety measures (such as waking watches), with funding coming from the taxpayer (Building Safety Fund), developers (Building Safety Levy), and landlords. The UK's largest developers are being pressed to agree to "voluntarily" fix "life-critical fire-safety defects" affecting buildings they were responsible for, on pain of having planning permission and building control sign-off revoked.

However, significant numbers of leaseholders receive little or no protection from non-cladding remediation costs-buy-to-let (BtL) owners with more than three properties, enfranchised leaseholders and those living in blocks below 11m. In addition, statutory liability for remediation is placed on landlords whose financial interest in a building is generally relatively small, rather than developers. The significant number of unprotected leaseholders and a reliance on, in some cases, thinly capitalised or significantly indebted landlord groups creates a range of new credit risks for ground rent investors (often pension funds) and lenders.

Banks and building societies face increased credit risks, particularly in relation to their BtL portfolios. The threat of lease forfeiture, which has historically been a very rare event, could become a far more common outcome for many BtL and enfranchised owners, wiping out an entire lenders security unless further capital is provided. Pension funds that invested in ground rent funds face significant unanticipated costs. In the worst case a thinly capitalised or significantly indebted landlord group could fail with unknown costs.

There is an alternative proposal that would substantially reduce the financial stability and public finance risks. An amendment, based on drafting by Daniel Greenberg (former parliamentary counsel and currently Parliamentary Commissioner for Standards) to the Levelling-up and Regeneration Bill provides for an alternative comprehensive solution to the building safety crisis has been tabled by the Earl of Lytton for debate in the House of Lords next week.

If the Government implements this amendment - then a potential banking crisis could be prevented and the suffering of tens of thousands of homeowners around the country could be prevented.

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BuildingSafetyCrisis is a leaseholder led organisation where volunteers give up their free time to develop policy and campaign to solve the cladding crisis in the UK.

This release was published on openPR.