Cladding crisis could threaten UK's financial stability, say reports
New reports have revealed that concern is mounting at the Bank of England (BoE) about the UK's cladding scandal and the impact it could have on financial instability.
The FT reported, citing three sources, that the bank and the Prudential Regulation Authority (PRA) — the section of the BoE which supervises commercial banks — is asking lenders to audit their exposure to homes that might be unsellable.
Sources told the FT that the BoE is worried the government has not taken into account the scale of the crisis and that the hit to mortgage lenders will likely be higher than currently stated. Credit risk specialists are currently looking into the issue, the newspaper said.
Mortgage lenders including Lloyds Bank (LLOY.L) and Nationwide have been encouraged to take a closer look at their loan books as bills begin to mount.
The Bank of England declined to comment.
“It is unacceptable and unfair that leaseholders are facing excessive bills – they are innocent parties in this and building owners and industry must make buildings safe without passing on costs to them," a Department for Levelling Up, Housing and Communities said.
“Most blocks of flats are safe and do not need expensive works. Extreme risk aversion has driven unnecessary work and unnecessary costs, and we continue to drive it out of the market by encouraging a more proportionate, evidence-based approach.”
Building repairs have been underway in the wake of the Grenfell Tower fire, which killed 72 people in 2017. Flammable cladding and other fire safety defects were also discovered in hundreds of blocks of flats across the UK.
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In February, the government outlined plans to rectify unsafe cladding on buildings with a £5bn ($6.7bn) investment. At the time, it said it would fully fund the cost of replacing unsafe cladding for all leaseholders in residential buildings 18 metres, or 6 storeys, and higher in England.
Since then, MPs estimated the total cost would be £15bn.
While the scheme nets a large portion of affected properties, buildings between 11 metres and 18 metres are not covered by the Building Safety Fund. Ministers also announced a loan scheme, where leaseholders would repay up to £50 a month.
Removing cladding can cost millions of pounds per block, with the amount often being borne by individual flat owners, under the leasehold system in England and Wales.
There are hundreds of thousands of people still living in unsafe blocks of flats to this day.
Earlier in November, housing minister Michael Gove had questioned why flat owners have been left picking up the bill as dangerous cladding is removed from buildings.
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Calling leaseholders "innocent parties", the housing secretary said the government had a responsibility to help them with the large costs.
Gove said that plans to make flat owners fork out for fixing their properties would be put on hold and called requirements for 24-hour fire patrols a "rip-off".
Gove also said the government had "failed people at Grenfell".
