The pandemic is far from being the only factor affecting the UK housing market.
You may or may not be aware that housing in the United Kingdom represents the largest non-financial asset class of the population. Its overall net value passed the £5 trillion mark in 2014, with about 30% of homes owned outright by their occupants, and a further 40% being owner-occupied on a mortgage. But in the last few years, more and more of the population are having difficulty in achieving their dream of owning a property of their own.
Of course, the last 12 months have been difficult for all sectors with the global pandemic, however, one of the hardest-hit areas has been those trying to sell or purchase a flat. Why? Believe it not, it is not even related to the pandemic. That is right, even though these buildings were built legally, there are more and more that are non-compliant with the fire safety standards and regulations.
Following the 2017 Grenfell Tower tragedy, the awareness around fire-safe cladding, internal wall fire barrier requirements, fire-safe balconies and awnings has become the top priority. This has meant that many existing flats have become un-mortgageable. So now, thousands of families are trapped in flats they cannot sell because of the fire risks.
This in turn affects other areas of the housing market, as those that were looking to upsize, can no longer rely on the equity from their sale for their next purchase. In a reverse effect, those looking to downsize or move closer to the city have a much smaller pool of choice for their purchase.
All in all, the number of flat sales fell by about 5,600 – a huge 48% - in September, down from 11,500 transactions during the same month in 2019 (source). And with sales for flats falling at almost twice the rate of those for houses it leads us to believe that the hefty costs involved in bringing a flat up to the requirements for fire regulations are a much higher factor in the decline than the pandemic. Despite pledged £1.6 bn in government funding for the removal of dangerous cladding, the program is believed to be pitifully insufficient as well as being vastly oversubscribed.
As we are heading into the fourth year since the tragedy, it is shocking to think an estimated 700,000 people are still living in high-rise blocks with flammable cladding (source).
Good – and bad - news
Faced with mounting pressure from campaigners - Boris Johnson has promised the government will outline a plan for the cladding crisis “very shortly”. It is understood the plan will involve the provision of long-term loans to the companies which own the affected buildings, with leaseholders expected to repay these through their service charges. Campaigners claim this “cladding tax” is a wholly unacceptable solution to the issue.
Fortunately, a new regulatory body operating within the Office for Product Safety and Standards (OPSS) is soon to be established to ensure that all flammable building materials will be banned from sale and use in the UK moving forward (source). Not only that, but the new regulator will also monitor the industry and prosecute any companies that flout the new regulations.
While very positive, this doesn’t help the thousands trapped in homes which are no longer suitable. The next 12 months promise to be important in the recovery of the housing sector. Financially viable and fair solutions are needed as we not only recover from the pandemic but look to the future, to ensure our buildings are safe and meet regulations.