- The NHF's voluntary agreement on extension of the Right to Buy
to Housing Association tenants includes a commitment to explore the
potential for tenants who cannot afford to buy outright to acquire
an equity stake in their home. It would be prudent for local
authorities to consider the merits and feasibility of a similar
scheme for council tenants.
- Very few local authorities currently operate Social HomeBuy
schemes approved by the HCA, which allow tenants to buy an equity
stake in their home at a discount pro-rata to that available under
the Right to Buy. They can increase their equity stake later as
with other shared ownership schemes. Discounts are funded by
financial assistance from the HCA.
- There can be no guarantee that any initiative to extend
opportunities for council tenants to acquire an equity stake would
be based on the current Social Homebuy scheme; however, the current
scheme provides a good starting point for consideration of
potential options and their implications.
Chapter 3 of the NHF's voluntary agreement on extension of the
Right to Buy to housing association tenants includes the following
paragraphs:
"Many tenants would benefit from this
new Right to Buy offer but others would not be able to or may not
wish to buy their home outright, even with the discount. A number
of housing associations have already developed innovative
approaches to enable their tenants to access the housing market,
for example flexible tenancies and equity stakes.
Housing associations would commit to
extending this work with the aim of making available to all their
tenants the opportunity to acquire a stake in a home which can
increase over time. The Government would work with housing
associations to help to develop flexible tenure models and savings
vehicles to enable this to happen. This could include tenants
converting their rented properties into shared ownership,
overpaying on their rent in order to take an equity share in their
property, or building up a savings pot to enable them to purchase
an alternative property."
During the Comprehensive Spending Review (CSR) last Autumn there
were several reports in the media that the CSR was considering the
extension of shared ownership as part of the Government's home
ownership drive. Ian Duncan-Smith was reported to be keen on the
idea that councils and housing associations should be required to
offer tenants the opportunity to buy on shared ownership terms. In
the event, the CSR report did not mention this idea, but it may be
that it is still under consideration within Government. ARCH
members would therefore be prudent to consider the implications of
such a scheme in case it is brought forward at some time in the
future. This briefing paper sets out the fundamental points of the
current Social Homebuy Scheme.
Shared ownership has been around since the 1970s, provided under
various schemes. Most homes made available for shared ownership
have been new completions, although in the past Do-It-Youself
Shared Ownership (DIYSO) schemes have given applicants the
opportunity to purchase existing properties on shared ownership
terms. Housing associations have been the predominant providers of
shared ownership homes, although local authorities can and have
provided a number.
Social Homebuy has been in operation since 2006. It enables
local authorities and housing associations to operate schemes
approved by the HCA under which tenants eligible for Right to Buy
but unable to afford to buy outright may purchase an equity share
of between 25% and 90% with a discount proportional to that they
would have received under the Right to Buy. Discounts are funded
through financial assistance from the HCA. Councils are permitted
to retain the full capital receipt for reinvestment in social or
affordable housing. Very few local authorities operate schemes with
only 40 homes sold in total since the scheme was introduced.
Social Homebuy operates in the same way as other shared
ownership schemes. Purchasers acquire an initial equity share and
may later purchase additional shares up to 100% at which point they
acquire the freehold, if the property is a house, or, if it is a
flat, a long lease on the property. Only the initial purchase is
eligible for discount. Purchasers pay a rent on the landlord's
share of the property which is initially no more than 3% of its
market value. The rent may be increased annually by up to RPI plus
0.5% (neither the switch to CPI nor the rent reductions from April
apply).
In the case of houses, purchasers become liable for repair and
maintenance of the property as if they owned it outright. In the
case of flats, they become responsible for maintenance of the
interior and liable to a service charge in relation to maintenance
of the exterior and common parts, like leaseholders, except that
they pay a percentage of the full service charge equal to their
equity share. Rent and maintenance-related service charges are
eligible for Housing Benefit.
According to the HCA website, under shared ownership "property
title and equity are split between the leaseholder (the shared
ownership purchaser) and the shared ownership provider" and the
purchaser acquires "a leasehold interest". However, the courts in
Richardson v Midland Heart held that the tenant's interest
was no more than an assured tenancy so long as she had purchased
less than 100% of the equity and that she had no legal right to
reimbursement for the equity she had purchased.
Eligibility for Social Homebuy is confined to households with
earnings up to £60,000 (in London £71,000 for 1 and 2-bed
properties and £85,000 for 3-bed or larger properties); these
limits are due to rise from April 2016 to £80,000 and £90,000 in
London.
There is no guarantee that any Government initiative to extend
opportunities to acquire an equity stake or purchase on shared
ownership terms would be based on the rules of the current Social
Homebuy scheme. However, the scheme provides a good starting point
for consideration of the options. Issues for consideration
include:
- Potential interest and take-up is likely to be greatest in
areas where house prices are high relative to incomes. An eligible
tenant who can afford it will normally be better off buying
outright and receiving the full Right to Buy discount.
- The great majority of shared ownership properties are
relatively new and occupied by working households on relatively
high incomes. Extending eligibility, particularly if this took the
form of a right to purchase on shared ownership terms, would most
likely involve a number of older properties potentially in current
or future need of major repair and tenants on lower incomes or not
in continuous employment.
- The minimum purchase of a 25% share debars tenants on the
lowest incomes, but also helps to filter out tenants who would find
it most difficult to afford their repair and maintenance
obligations, in particular the requirement in flats to contribute
to the costs of major repairs. The implications of reducing this
minimum would need to be carefully examined.
- Councils would presumably expect the current arrangements to
continue that allow for HCA financial assistance and retention of
capital receipts.
ARCH will be monitoring how Chapter 3 of the NHF Voluntary Deal
is put into practice and what if any benefits there might be in
extending such arrangements to council tenants and will produce
further briefings for members if councils are asked to provide
similar opportunities for council tenants to acquire an equity
stake in their home on either a voluntary or mandatory basis.