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A missed opportunity for change

Despite its loudly trumpeted initiatives to help first-time buyers in need, the radical overhaul of shared ownership promised by the government has not materialised, says Melanie Bien

After months of consultation, the government’s revamped HomeBuy scheme is to be introduced next April. But whether the scheme is successful in helping meet the government’s target of 100,000 extra people becoming home owners within the next five years remains to be seen.

One of the main deterrents to take-up of affordable housing schemes is lack of understanding. There has long been demand for a simplification of the products available. Unfortunately, with the introduction of three products and two varying legal models added to the other versions that have gone before plus the need to raise finance, this remains a far from simple sector.

Three new products – Social HomeBuy, New Build HomeBuy and Open Market HomeBuy – will be introduced to help first-time buyers with acute affordability problems to buy a home. The Open Market and New Build HomeBuy schemes will replace shared ownership and equity loan products while Social HomeBuy will be a new opportunity for social tenants.

Under Social and New Build HomeBuy, purchasers can buy a minimum share of 25% of the property via savings and a loan. The remaining portion is held by a housing provider such as a Registered Social Landlord, local authority or other body in receipt of a grant to provide affordable housing.

The idea is that the buyer purchases the remaining share from the housing provider in tranches of 10%, based on the open market value of the home at that time.

Instead of rent being levied on this portion – as was the case in the past – it will simply be referred to as a ‘charge’. This will be annual but paid in instalments. It will be capped at 3% with a target of 2.75%. Under current shared ownership schemes, rent of up to 4% is levied in some cases, which isn’t significantly cheaper than that charged on a home loan. Introducing the cap should make the scheme more affordable and assist first-time buyers with budgeting. The Housing Corporation will work with the government to monitor charge levels.

Under Open Market HomeBuy, purchasers will be expected to buy around 75% of the property, the exact amount depending on how much they can afford. A housing provider will supply a loan for the remaining 25% of the equity although the charge on this hasn’t yet been defined.

The initial consultation document proposed that this could be as much as 3% but this has been changed to a modest rental charge, which will be lower than on the other schemes. This stake must be repaid when the property is sold.

The schemes are aimed at different types of buyers. Social HomeBuy is for existing housing association tenants, to enable them to buy a share in the property in which they reside. It is aimed at those who don’t have or can’t afford the Right to Buy or Right to Acquire. There is a discount on the total purchase price of the property, up to Right to Acquire levels, pro rata to the share they buy. The government will reimburse the landlord for the cost of these discounts. Most of any profit generated by the sale of property via Social HomeBuy will be used to provide more social lettings, while a small proportion will be spent on other housing related projects.

New Build HomeBuy is for key workers, social tenants, those on housing waiting lists and other first-time buyers who have been identified as being a priority by Regional Housing Boards. Only newly built homes can be bought under this scheme. Open Market HomeBuy is available to the same group of people but those living in London, the South- East and eastern regions, and properties sold on the open market.

The definition of a key worker will also be extended to include all clinical NHS staff, teachers in schools and further education, police officers and community support officers, uniformed staff in fire and rescue services, prison and probation service staff, social workers, occupational therapists, educational psychologists, speech therapists, qualified nursery nurses, local authority-employed clinical staff and local authority planners.

These proposals should increase affordability for those in need of assistance, particularly Social and New Build HomeBuy as only a small initial stake needs to be bought.

But while any measures to help first-time buyers are welcome, an opportunity has been missed. The radical overhaul of shared ownership that the government proposed has not materialised. The legal model for Social and New Build HomeBuy seems akin to the existing shared ownership model and will simply lose its old name.

Open Market HomeBuy is pretty much the same as the existing HomeBuy product. Under the legal model of the new scheme, the buyer has full ownership of the home and the equity loan is placed as a second charge on the property. The main difference between this and the current product is that at the moment a levy isn’t charged for the equity loan.

The lenders offering equity loans for the schemes will depend on which legal model applies, the level of the share being bought, whether the buyer is a key worker or not, and whether there are any restrictive covenants that must be factored in to satisfy planners or local authorities.

This is already a specialist market for independent financial advisers and this raft of products will add to the complexity. Whether the government’s wider programme of assistance for those struggling to get on the housing ladder will help 100,000 households remains to be seen. The numbers seem realistic but achievability – particularly for New Build HomeBuy – will depend on the impact of the new definitions of key worker and which first-time buyers are identified as being a priority by Regional Housing Boards.

Much also depends on whether housing providers believe the proposals are financially sustainable, although the National Housing Federation and registered social landlords that have been consulted believe this will be the case.

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