Ministers have pledged a further £3.5bn to address a building safety crisis that has embroiled millions of homeowners in England and announced plans for a new levy on developers.

But thousands of leaseholders will remain liable for repairs through a new state-backed lending scheme — although their costs will be capped.

The UK government had already promised £1.6bn last year towards fixing the cladding on buildings higher than 18 metres, typically six storeys or more, several years after the Grenfell Tower fire killed 72 people.

The fresh injection of £3.5bn from the Treasury will go towards making towers of 18m or more fireproof, but leaseholders in smaller blocks will still be on the hook for costs, communities and housing secretary Robert Jenrick told MPs on Wednesday.

Calling it a “very significant intervention”, Jenrick said the government was providing a “clear plan to remove unsafe cladding”.

He added: “I appreciate the frustration, the worry and at times the despair [homeowners] feel. I share their anger at the errors, the omissions, the false promises and even the outright dishonesty that came before us.”

The UK’s building safety crisis was triggered by the 2017 Grenfell disaster, which exposed the dangers of cladding and insulation used on the block and thousands others like it. The fire also showed up the deficiencies of the regulations under which developments were signed off as safe.

Almost four years on, millions of leaseholders are trapped in flats they are unable to sell because mortgage lenders cannot establish whether they are safe and because funding to fix the properties is unavailable.

Jenrick said the government expected freeholders to pay for fixing the cladding on buildings shorter than 18m — usually four to six storeys.

Where this is not possible they will be able to access a new government financing scheme to borrow the money at low interest rates. The leaseholder payments will be capped at a maximum of £50 a month — equivalent to £600 a year.

Jenrick also said there would be a new levy on housebuilders to ensure the construction industry “plays its part” in sorting out the problem. But he said the details of the new tax, to start in 2022, had not been finalised and would be worked out in the coming weeks.

Thangam Debbonaire, Labour’s shadow housing minister, said: “These proposals will still leave too many people suffering and facing loans instead of giving them justice.”

Conservative MP Stephen McPartland, a vocal critic of the government's handling of the cladding crisis, tweeted: “I am listening to Robert Jenrick’s announcement with my head in my hands. Wondering how he can have got this so wrong. He added: “It is a betrayal of millions of leaseholders. It is not good enough. It is shocking incompetence. It is clear the PM has to step in now.”

Leaseholders in blocks less than 18m in height have been calling on the government and builders to fully fund remediation — work that includes fixing issues beyond cladding.

“Where is the money for missing fire breaks, alarms or for cladding on buildings under 18m?” asked Paul Afshar, from campaign group End Our Cladding Scandal: “The government promised us no leaseholder would have to pay to make their homes safe. Today we feel betrayed.”

According to the trade publication Inside Housing, there are more than 100,000 blocks between 11m and 18m high, compared with slightly more than 10,000 that are taller than 18m.

“Residents shouldn’t be forced into loans and new debt just because of the height of their building,” said a spokesperson for the bereaved and survivors of the Grenfell fire.

Jenrick said he was confident that Wednesday’s intervention would get the housing market moving again.

But while long-term loans might soften the impact of paying for repairs, they risk devaluing flats and pushing owners into negative equity, because any new buyer would have to factor in the payments.

Dominic Agace, chief executive of estate agents Winkworth, said the loan would leave homeowners “shackled with another financial burden, which could make it extremely difficult to sell the property.”

The £3.5bn package was short of the highest estimates for the costs of remediation, which some experts had placed at £15bn.

Almost two-thirds of leaseholders caught up in the crisis face bills of more than £30,000 to cover repair work, and one in six are considering declaring bankruptcy, according to a survey of 1,342 leaseholders conducted by Inside Housing.

Jenrick made no mention of compensating homeowners who were being forced to cover the costs of temporary safety measures, which in many cases have run to tens of thousands of pounds.