Policy
Affordable Housing
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Contact: Victoria Barnard Date: 19 Oct 2009 |
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Overview
In England, the Government's affordable housing schemes are administered through the Homes and Communities Agency (HCA).
The HCA offers two main affordable housing schemes - Shared Ownership and Shared Equity.
Shared Ownership
Shared ownership works by purchasing a percentage of the property, with the remainder owned by a Housing Association, who will rent on that share. A shared owner is a leaseholder of the housing association, which retains the freehold of the property.
The buyer can purchase a 25%, 50% or 75% share and can purchase additional shares over time (known as "staircasing").
The main shared ownership products that are currently offered by the HCA are:-
• New Build HomeBuy - This scheme allows the buyer to share ownership of the property with a Housing Association, paying the mortgage on the part that is owned plus rent to the Housing Association for the remaining part.
Although termed ‘New Build’ the properties developed within the programme can be conversions and rehabilitated homes.
The minimum initial share that can be purchased is 25%; the maximum share is 75%. Further shares can be purchased at a later date
• Social HomeBuy - This scheme allows existing social tenants to buy a share in the in which they currently reside.
The range of initial shares can be any amount between 25% (minimum purchase) and 100%. Unlike New Build HomeBuy, the purchaser can buy the property outright at the outset.
Further details on the schemes can be found on the HCA website which can be accessed via the link below:
Shared Equity
Shared Equity involves purchasing the property outright by taking out two loans. The first loan is a conventional mortgage which covers a proportion of the property. An equity loan is then taken out for the remainder of the purchase price.
The buyer, therefore, owns 100% of the property. However, if they sell the property, the buyer must, as well as repaying the mortgage, also repay the equity loan and a proportion of any capital growth, which will correspond to the market value of the property at the time of repayment.
There are two products offered by the HCA:
HomeBuy Direct - The buyer raises funding (a mortgage, plus a deposit where applicable) to purchase at least 70 percent of the purchase price. The remainder is funded with an equity loan covering up to 30 percent of the price. The maximum value of homes purchased through HomeBuy Direct is £300,000.
FirstBuy - The buyer raises funding (a mortgage, plus deposit where applicable) of at least 80% of the purchase price. The remainder is funded by an equity loan of up to 20% of the purchase price. The equity loan is funded equally by the HCA and the developer and is for a term of 25 years.
The maximum property value under FirstBuy is £280,000.
Purchasers do not pay a fee on the equity loan for the first five years. From the start of year six an annual fee of 1.75% will be levied on the equity loan, payable in monthly instalments. The annual fee of 1.75% will be uplifted by RPI + 1% per annum.
If a purchaser opts to sell the property prior to the redemption date of the equity loan (25 years), or redeems the main mortgage prior to that period (without refinancing), the equity loan becomes repayable in full. The amount repayable is calculated on the market value at the time. The equity loan can be redeemed in part or full at any time.
In order to be eligible for the scheme, the purchaser must fit the criteria for other Homebuy schemes. The exception will be in London under the First Steps (see below) where the household income cap will be £74,000 for families purchasing a home with three or more bedrooms.
The form of equity loan will be prescribed by the HCA and will follow the form of equity mortgage used for HomeBuy Direct. The developer and HCA will both lend on these terms.
FirstBuy is supported by a number of BSA members and is expected to be live by September 2011.
Affordable Housing in London
In April 2011 London will launch “First Steps” as the brand name for affordable homeownership within London. Sitting under this will be “First Steps Equity Loans” (Homebuy Direct) and “First Steps Shared Ownership” (New Build Homebuy). There will be no difference in documentation or scheme dynamics between the London products and the current HCA products.
In April 2012 the Mayor will take responsibility for Housing investment in the capital. At the same time the income cap for people purchasing homes with three or more bedrooms will be increased to £74,000. For all other room sizes and for single people the cap will remain at £60,000.
Eligibility Criteria
Each scheme has different eligibility criteria. As a general rule access to the HCA's Homebuy schemes is targeted at people who earn less than 60,000.
Housing Associations are responsible for assessing potential applicants. Local authorities can, through their planning agreements, define eligibility more tightly in relation to income levels and local connection to specific schemes.
Mortgagee Protection Clause for Shared Ownership Properties
The Mortgagee Protection clause (MPC), gives the lender the right to claim a number of costs (in addition to any outstanding mortgage) from the Housing Association. This effectively means the lender is entitled to claim on 100% of the property value, not just the owned share.
The MPC only provides protection to the lender where the borrower has acquired less than 100% of the property. Once a borrower has staircased to 100% ownership the lender will no longer benefit from the additional protection offered by the housing association.
The current version came into force on 6 April 2010.
Further details on the MPC can be accessed via the link below:
Mortgagee Protection Clause & Explanatory Note
Section 106 Agreements
Local authorities often attach conditions to affordable housing, through Section 106 agreements (S106).
These conditions can include restrictions on the property such as; ensuring that future sales of the property are only to individuals from specified employment groups, or from within the community in which the property is located. Agreements can also contain value limits to ensure the property remains affordable.
Restrictions pose risks for the lender, as they can affect the future saleability of the property.
Affordable Homes Programme 2011 - 2015
On 14 February 2011, the HCA published the 2011-15 Affordable Homes Programme Framework, which sets out how it will allocate its reduced budget for the spending review period on affordable housing.
The key aspects of the HCA Affordable Homes Programme are:
• The Homes and Communities Agency will invest £4.5bn in new affordable housing through the spending period.
• The HCA’s Investment Partners will help to deliver up to 150,000 new affordable homes.
• The majority of the homes built will be made available as Affordable Rent with some affordable homeownership
• Shared ownership will continue to form the main element of the affordable home ownership agenda. Equity loans will be considered in certain circumstances.
• HCA registered providers can offer ‘equity loans’ to a maximum of 20% of the value of the property and the terms of any equity loan products will have to be identical to the HomeBuy Direct product
• Eligibility requirements for the schemes are unchanged. Local authorities are expected to priorotise existing social housing tenants who wish to move into home ownership and serving armed forces personnel.
The full details can be accessed via the link below:
HCA Affordable Homes Programme 2011 - 2015
