Cladding guidelines for investors.
One of the most pressing questions facing buy-to-let landlords in the UK concerns cladding. This is the biggest story in the industry and it is attracting a lot of attention as many people – including landlords – are beginning to face mounting bills and increased uncertainty due to a problem they did not cause.
Is the UK cladding scandal all bad news for landlords? Or are there some potential positives too?
Why is cladding such a big issue at the moment?
Cladding is the process of adding an extra layer to a building which can protect it better from the elements or increase its insulation rating.
The Grenfell Fire disaster made it clear that not only is a lot of existing cladding ineffective, but it is also flammable and often dangerous to life. This has led to a rush to replace flammable cladding on high rise and other buildings before another tragedy occurs.
In practical terms, this means that expensive retrospective work is being carried out on buildings across the country and there has been a huge row over who is paying for it, with developers trying to make leaseholders pay to fix a problem they did not cause.
What new cladding legislation has been brought in?
To help leaseholders combat this issue, avoid unfair fees and get unsafe cladding removed from their properties, the government has brought in the Building Safety Act 2022.
This will protect leaseholders in law for the first time and prevent the costs of replacing unsafe cladding being payable by them. Instead, the Secretary of State at the time the law was written, Michael Gove, has shifted the burden onto the developers and freeholders. Put simply, those responsible for installing dangerous cladding and those who own the buildings will be required to fund essential repairs.
This applies to all buildings over 11 metres in height, although campaigners from the End Our Cladding Scandal group have questioned why it does not also apply to buildings under 11 metres in height. This is an ongoing issue that will also need to be resolved in future.
The bill also opens up a new phase of the Building Safety Fund (BSF) – a £5.1bn pot for the next 10 years to fund the removal of dangerous, flammable cladding from buildings.
Gove said the Building Safety Act 2022, “marks a major turning point for building safety in this country, as we introduce a tough new regime to make homes safe and help rid the sector of bad practice once and for all.
“Hundreds of thousands of innocent leaseholders now have the legal protection they rightly deserve, freeing them from a financial burden they should never have faced.”
How does the cladding crisis affect buy to let landlords in the UK?
Landlords were initially excluded from the list of leaseholders who could apply to the Building Safety Fund and were expected to cover all costs themselves. Later on, this was amended to say that landlords who owned two or fewer properties would benefit from a cap on how much they could be asked to pay.
This still leaves portfolio landlords with huge potential costs and it is the unfortunate truth that these people will face mounting costs as they have to replace cladding under the new laws. There are multiple stories of larger landlords facing bills for tens or even hundreds of thousands of pounds.
The cladding scandal also offers landlords of properties clad in flammable material a range of other problems, including:
- Remortgaging to a lower rate is impossible as most lenders will not loan you money
- Properties drop hugely in value
- Almost impossible to sell and exit the market
- Renters may be unwilling to move into blocks with fire safety issues
What can buy to let investors do to limit the impact of the cladding crisis?
The process of working out how the cladding scandal in UK property will be solved is still ongoing. In the meantime, there are some types of landlords who will benefit, and a strategy to take for your next investment that will help limit your exposure.
The first group that could benefit are smaller or new landlords who will only have two or fewer properties in the same building. As mentioned above, the Department of Levelling Up, Housing and Communities has specified that cladding relief will be available to these buy-to-let landlords in the form of a cap on the cost of cladding work – £10,000, or £15,000 in London. This will help smaller landlords keep costs down and incentivise new landlords to keep investing in a limited number of properties.
The second group are those landlords who purchase new build properties. New developments will have to meet the new, higher standards of cladding in order to complete and will therefore not come with any concerns about flammable cladding.
Similarly, the fact that new build developments are known to not include flammable cladding will also make them more attractive to potential renters. Furthermore, when you choose to sell your property, you will not face any issues selling it in the same way that landlords caught up in the cladding scandal have. Your investment is therefore more protected and future-proof, particularly if you buy an off-plan property which is currently in construction as that will be using the most up to date materials.
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