Hundreds of thousands of UK leaseholders trapped in flats because of the building safety crisis may soon be able to sell their homes after the government struck a deal with leading high street banks that will allow them to lend again.

The move is the latest attempt to tackle what housing secretary Robert Jenrick described on Wednesday as “a market failure” triggered by the 2017 fire at Grenfell tower in which 72 people died.

Hundreds of thousands of homes have become unsellable because of safety fears since the fire. In an effort to unclog the market, Jenrick announced that any building under 18 metres tall would not require a so-called “EWS1” fire safety form and should be presumed safe by fire risk assessors and mortgage lenders.

That effectively reverses government guidance from January last year that said “buildings of any height” should be assessed for fire risk — a move that inadvertently expanded the scope of the crisis to include about 840,000 flats, according to government analysis.

Since the publication of that guidance, which will now be withdrawn, lenders have been reluctant to offer mortgages against any flat that might be considered unsafe, irrespective of its height.

Ministers have been frantically trying to thaw the market and this month prime minister Boris Johnson and other key Number 10 personnel met with executives at the UK’s leading lenders to discuss how they might resume lending to afflicted flats and to take “a more proportionate” approach to risk.

HSBC, Lloyds and Barclays, three of the UK’s largest lenders, welcomed the intervention and said they expected to ditch the requirement for EWS1 forms on blocks below 18m. Lloyds said it expected the move to “help further unlock the housing market”.

Jenrick said the announcement was “a significant step forward for leaseholders in medium and lower-rise buildings who have faced difficulty in selling, anxiety at the potential cost of remediation and concern at the safety of their homes”.

“Leaseholders cannot remain stuck in homes they cannot sell because of excessive industry caution,” he added.

Some leaseholders have been forced to pay tens of thousands of pounds for temporary safety measures such as ‘waking watches’ who patrol at-risk blocks 24 hours a day while they await confirmation of the safety of their buildings.

Jenrick’s intervention is unlikely to satisfy building safety campaigners and leaseholders who argue that fire safety should be paramount even if the danger of catastrophe is relatively low.

Kate Henderson, chief executive of the National Housing Federation, which represents housing associations, welcomed the announcement but said “the safety of residents must remain the number one priority”.

Additional reporting by Stephen Morris

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