properties. This has effectively made hundreds of thousands of homeowners stranded and unable to sell.
Michael Gove, Secretary of State for Housing and Communities, is pursuing the housebuilders to stump up the cash needed to solve the safety issues. There is no confirmed figure yet, but £4bn across the housebuilders with profits over £10m is thought to be the number the government is likely to request/impose. Gove recently proposed a new Building Safety Bill, which includes measures such as blocking planning permission and not signing off building control on new developments for those developers who have not overhauled the cladding on buildings they built. More importantly, the bill will also allow building owners to take legal action against manufacturers who use defective products on developments that have since been found to be unfit for habitation. The power will stretch back 30 years and allow the recovery of costs which have already been paid out.
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This is not only an issue for the housing building sector and for those stuck in unsellable properties. The Prudential Regulation Authority (PRA) are increasingly concerned about the impact the cladding crisis might have on financial stability. They claim the government has not yet grasped the scale of the cladding crisis and expects that the cost to mortgage lenders will be larger than those outlined so far. The PRA has been urging mortgage lenders, including Lloyds and Nationwide, to conduct thorough audits of their loan books to determine how much capital is at risk because of the crisis.
We expect to have clarity on the government’s decision by the end of March, which should reduce the uncertainty on the listed housebuilding sector in the UK and provide some relief to trapped homeowners.
How safe are British banks?
The Bank of England in 2021 has reviewed the banking sector, assessing it during a period of severe economic turbulence. They asked the 8 largest UK regulated banks what would happen if the following economic scenario were to happen:
• GDP were to fall by 9%, with a sudden spike down at the beginning of the drop
• This drop to follow on from the problems arising from Covid in 2020 • GDP to drop by 37% over a 3 year period when compared to 2019’s GDP
• UK residential and commercial property to fall 33% in value
• Unemployment to surge by 5.6% to reach 11.9% • Unemployment and growth to begin to recover later, but output to remain suppressed relative to 2019
• No further government stimulus during the period
What might seem like a near perfect storm of financial stress should, in a normal scenario, cause a banking crisis. But not this time.
Banks ended 2021 with strong balance sheets rebuilt during the financial crisis and protected by government support for businesses during Covid. Tier 1 capital against which these big banks lend
