Help to buy, cladding and space issue

Anjistar

My daughter and her husband have a mortgage and Help to Buy loan on what was a newbuild leasehold flat, which has left them in a bit of a cleft stick.

They are now paying interest on the government loan. 

They are also caught up in an issue arising from the cladding debacle. In their case it is the firebreaks that are substandard. It has been accepted that repairs are necessary and are the responsibility entirely of either the builder or the current owner, who, we gather, are negotiating. 

In the meantime, my daughter, who works from home, and her husband, who rents an office space nearby, are in a flat with two rooms and a bathroom, co-sleeping with a nearly three-year old as there’s no space for a separate bed for him. So they would really like to move. Although they both work full time, the mortgage, nursery fees, the office space rental and the interest payment on the loan puts paid to them saving much of a deposit. 

It also appears they can’t sell the flat to anyone but an (unlikely) cash buyer because of the firebreak issue, and the Help to Buy loan bans letting the property while they rent elsewhere until such time as they can sell.

 Which would be the wisest move right now? They could:

1.Pay off the Help to Buy and put the interest payment saved towards a deposit, while hoping for a cash buyer.

2. Pay off the Help to Buy and try to convert their mortgage into a buy-to-let while renting elsewhere until they can sell the flat.

3. Put the flat on the market anyway, hope for a cash buyer and allow the government to have its loan plus their percentage of any increase in value - which will obviously reduce their profit and thereby their available deposit for a bigger home.

4. Is there any precedent for the Government be flexible over their space issues, given the firebreak problem and allow the flat to be rented out?

Thank you.