ANALYSIS: £50k cladding repair bills push flats into negative equity

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The average repair bill for those flat owners with fire risk cladding is in the region of £50,000 per flat.

This means that for those properties in the North and the Midlands, where property prices are lower, owners face repair bills which are a bigger in proportion of the flat’s value than is the case in the south.

It means that on any view of a flat’s valuation in these affected blocks, the prospective remediation costs could easily push the value into negative equity.

Fire safety repair bills will cost roughly the same whether the property is in Clapham or Clacton, but in proportion to property values the variation means a lot. It means that flat owners in the cheaper parts of the country face far higher bills in proportion to the value of their homes.

According to the managing agents’ trade body, The Association of Residential Managing Agents (ARMA), the average remediation bill is £49,500, so with a flat worth £100,000 in Newcastle, this represents half its value.

On the other hand, a typical London flat with a valuation of over £300,000 the remediation costs represent a much lower proportion, in this case just 17%.

Serious issue

It’s a serious issue for many flat owners, especially those in the cheaper areas where purchase prices initially looked like a bargain. Given the cost of remediation, a good proportion of landlords’ properties could be worth less than their outstanding mortgages. In this case, if forced to sell, some owners could easily be pushed into bankruptcy.

The Daily Telegraph puts 50% of flat owners in Manchester in negative equity if values were to fall by the same amount, and in Newcastle this figure could reach over 70%. However, in the East London, where the median flat price is £335,038, the share would be no more that around 3%.

These stark figures underline the North/South divide and the impact the tower block remediation and fire watch costs are having on flat owners. It also emphasises the mountain the government still has to climb with their “levelling up” agenda.  

Case study: Daniel Guirguis

Daniel Guirguis, 39, owner of two buy-to-let flats in Manchester, told The Daily Telegraph that he purchased them for £80,000 and £85,000. Unfortunately for him, both the blocks have been condemned because they failed the external wall safety (EWS1) assessments and will now require remediation works.

One of the blocks involved has just had its application to the Government’s building safety fund (BSF) rejected. It means that all the leaseholders are now facing repair bills of around £50,000 each, that’s equivalent to 60pc of Mr Guirguis’ purchase price.

His BSF application for the second flat is still underway, but he says: “If the application is approved, each leaseholder will still need to pay £10,000. If everything gets rejected, the cost will be £42,000,” he told The Telegraph.

Mr Guirguis’ total liability could potentially be around £92,000, whereas he paid less than that for each of his flats. Mr Guirguis speculates whether it would be cheaper to demolish and rebuild the flats altogether?

Turned down flat

Landlords are finding it impossible to re-mortgage flats subject to these charges and many are now trying to increase rents to cover some of these costs. Some are struggling even when they do get Government funding.

The cost of remediation does also vary according to the difficulty of carrying out the works. Site access and permission requirements, plus building heights are big factors which significantly affect costs.

In general, cheaper properties are the ones more likely to be affected by these complications, so again more likely to be disproportionately affected on costs. In addition, in many cases the initial applications to the building safety fund, based on surveyors’ calculations, do not take these complications and additional costs into account.

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