Shared Home Ownership (Consultation Responses)
In April 2015 Mid-Wales Housing Association issued a consultation paper entitled "Shared Ownership with the Benefit of a Safety Net."
This presented a proposal that the Association should offer its existing tenants an opportunity to own or part own the home they are renting, but with the security of a safety net should they get into financial difficulty.
The details of the consultation paper can be viewed on the Association's web site: http://www.mid-walesha.co.uk/en/shared-home-ownership
The Association has a history of innovation, and looking for new ways to maximise the delivery of new homes, and this idea was born out of that ethos.
2. The Consultation Process
The consultation paper was officially launched on 23rd and 24th April 2015 at two events: one at Llety Parc in Aberystwyth and the other at the Association's offices at Ty Canol House in Newtown.
Partner organisations and key stakeholders such as the two county councils were invited to attend that launch.
The consultation paper was simultaneously launched on the Association's web site, and copies of the paper distributed to:
- All of its tenants;
- All community/town councils within Ceredigion and Powys (via their clerks);
- All county councillors for Powys and Ceredigion;
- The Association's lenders;
- Other key stakeholders including county council officers, representative bodies such as Tai Pawb and the Chartered Institute of Housing in Wales, and other Registered Social Landlords operating in the region.
The closing date for responses was 30th June 2015, although a few responses were received after that date and have been included in this report.
Respondents were asked to consider a number of key questions (see appendix 1) but were also encouraged to submit comments in any manner they wished on the issues raised. As a result, not all those responding answered all of the suggested questions.
The questions asked were tailored to suit three groups – tenants; lenders and the general public, recognising that each interest group would have a different perspective.
3. Executive Summary
The Association received a total of 148 responses. The breakdown of respondents is shown below:
- 70% of those responding to the consultation supported the Association's proposals.
- This included 68% of tenants responding which was an increase on the initial survey results in 2012 which indicated that 43% of tenants were interested.
- The level of response was relatively low at 7.5% of its tenants, although this was consistent with the 2012 survey (7.9%).
- Most tenants felt the scheme should only be available to what was regarded as "good tenants" and only after a period living in the property of between three and five years. Taken together, a conclusion can be drawn that some length of tenure, demonstrating that a tenant, was considered together.
- There was little support for excluding any tenants from being able to take advantage of the scheme, but there was some recognition that certain properties were scarcer than others, and it would be essential to replace them.
Other respondents supported the principle of releasing capital to provide more homes, but many felt it was important to ensure the scheme targeted "local" people.
4. Response to Key Questions – Tenants
a) Would you be interested in taking advantage of this scheme?
One tenant did not reply to this question. The majority (80 tenants out of 118 replies) supported the idea. A total of 37 did not support the idea, and where a reason was given, this often mentioned the respondent's own circumstances. A number of respondents answered NO as it would not apply to them given their age. A small number stated they would wish to buy 100% if given the opportunity.
b) Do you think this opportunity to buy should be extended to all tenants?
Just 59% of tenants felt the scheme should be available to all tenants, and this may have been influenced by the following question.
c) Do you feel it should only be offered to "good" tenants? What criteria would you use to define a "good" tenant, if any?
Ninety-six tenants responded to this question with the vast majority feeling the idea should be seen as a reward for "good tenants". What constituted a good tenant varied, but included paying rent on time, maintaining the garden and not causing anti-social behaviour. There was a general view this should be measured over a period of years.
"A good tenant should pay rent when due, and keep the property clean, tidy and in good decorative order (Tenant)".
Those respondents who felt it should be available to everyone, tended to reflect the "principle" that social housing be available to everyone in need, and by extension this proposal should also be unrestricted.
A number commented about the need to ensure the purchasing tenant could afford to do so, and should therefore be in full time employment.
One respondent commented on the proposed "maintenance charge" suggesting it was unnecessary as those tenants purchasing would invest in the home once purchased, and probably replace components more swiftly than the Association. This may be an option that could be incorporated into the model, enabling the occupant to make the improvements and amending the long term maintenance charge accordingly.
d) How long do you think you should be a tenant before being able to exercise this opportunity?
Only a very small number of tenants felt there should not be any time limits. Most felt that the option to buy should only be available to tenants after a period of years with the vast majority suggesting between three and five years.
e) Do you think that any type of property should be excluded from the scheme (e.g. properties adapted for a specific reason)?
A surprisingly low number of tenants felt there should be any restrictions on the properties to which this option applied, with 25% suggesting some restrictions. In the main this related to specialist accommodation such as bungalows for the elderly or specially adapted properties for the disabled, and is in line with the current approach of other initiatives such as Right to Acquire/Buy which exclude specialist properties. However, many felt the option should be open to all tenants regardless of the property, and many commented on how important it was to replace specialist accommodation by building replacements.
5. Response to Key Questions – Other Respondents
Most of the other responders were local representatives, or housing professionals with an interest in the subject. There were a few replies from the general public.
a) Do you feel that allowing tenants to buy a share of their property is a good thing?
The majority (23) of those responding supported the initiative, with a number echoing the need to reinvest the capital received in providing more homes.
". . . providing that money is re-invested in buying/providing more social houses (a mistake the Council made) . . ." (member of public).
Just two respondents were against the idea, one due to fears it would erode the stock of rented housing, and another felt the principle was a "disgusting" equity release scheme.
b) Do you feel the outcome of providing more homes is worth pursuing?
Not surprisingly, all the respondents felt this was a worthwhile aim, even the minority who didn't support the proposal. The housing professionals who responded felt all initiatives should be considered if it increased the supply of good quality housing.
c) Should there be any restrictions on who can buy? If so, what should the limitations be?
Most respondents felt there should be some restrictions but these ranged quite widely, including:
- Ensuring it was only an option for "local" people.
- Ensuring it was targeted at those employed locally, or for a minimum number of hours.
- Ensuring it was only available to those who could NOT buy a property on the open market.
- Prioritising "younger" tenants.
Whilst some commented on a minimum occupancy period or referred to "good" tenants, this was not an overarching concern.
d) Should this scheme be adopted across Wales by other Housing Associations?
All but one respondent felt other associations should adopt the scheme, with some recognising this should be by agreement.
e) Do you think that any type of property should be excluded from the scheme (e.g. properties adapted for a specific reason)?
A third of respondents felt certain properties should be excluded, most singling out specially adapted properties as those which should be excluded, many reasoning that these would be expensive to replace.
A few felt that excluding any property would be discriminatory, especially to the disabled.
6. The Response of Lenders
The Association recognised that the success of the initiative would depend on the support of lenders and there were two separate issues.
Firstly, would the Association's corporate lenders support the initiative? If so, would there be any identifiable difficulty in relation to its practical application? In particular, would there be any cost or legal issues around the security of existing loans?
Secondly, would lenders be prepared to offer a mortgage to tenants under the scheme? If so, again, would there be any impediments given the nature of the scheme?
Unfortunately, the Association only received one response which makes it difficult to draw any real conclusions. For the most part, the response referred the Association to standard terms and conditions on the lender's web site, and in the sense, didn't inform it whether this model would attract any special consideration, either negatively or positively. It did highlight that obtaining the support of lenders would be critical to whether the scheme could be taken forward.
There is a great deal of knowledge within the sector in respect of standard Shared Ownership models, and it will be critical to understand whether or not this proposal can improve the market for Low Cost Home Ownership.
The key questions asked of lenders are shown in Appendix 1.
7. Next Steps
The consultation exercise has demonstrated to the Association that there is a fairly steady proportion of its tenants who would like to buy a proportion of their home. Furthermore, the additional cost of a maintenance premium in return for a "safety net" in case of difficulty was not seen as a negative. However, whilst the Association can see an identifiable demand, it remains unclear whether or not the scheme would be supported by mortgage providers.
a) Further Consultation - Lenders
It is essential the Association consults more directly with mortgage providers. This will need to be targeted at the banking sector providing residential mortgages, and not its own contacts. It must recognise that lenders are large corporations and it is essential to identify the correct person with whom to discuss the initiative.
The Association will seek the support of the Council of Mortgage Lenders (CML) and Welsh Government to undertake this additional consultation.
b) Further Consultation - Tenants
The response from tenants is broadly positive, and reinforces a previous opinion survey. However, there is a risk that the sample was biased, in that only those tenants very keen on the idea chose to respond.
The Association will undertake further consultation, via a sample telephone survey to ensure the results are robust.
c) Developing the Scheme
Any such initiative will only succeed with the support of lenders. However, assuming there is some support amongst lenders, the Association will need to develop the scheme to a position where it can make a real offer. This will include:
- Developing appropriate marketing information.
- Agreeing a sensible affordability assessment. This will seek to establish whether the tenant can realistically afford to buy, and will be distinct from the criteria used by mortgage providers.
- Establishing a list of potential mortgage providers who the tenant can apply to for a mortgage.
- Agreeing procedures with Welsh Government for the re-use of capita receipts received.
- Finalising any cost implications. This will also include further research amongst associations currently providing traditional shared ownership products.
Appendix 1 - Key Questions Asked of Lenders
Q1 Would you, as a lender, be willing to give a mortgage to a tenant wishing to buy a share under this scheme?
Q2 If yes, what would be the broad terms/restrictions on lending (e.g. income multipliers if any?)
Q3 Given the buyback clause would you offer advantageous terms to the tenant?
Q4 Conversely, as this is a new product, would there be any additional charges?
Q5 Would there be any restrictions on sale, where the property is currently held as security against an Association loan, other than the usual repayment/re-securitisation necessary?
Q6 Are there any types of property you would not wish to lend on?