GOVERNMENT ANNOUNCES BOOST FOR AFFORDABLE HOUSING

5 Dec 2005 05:45 PM

The Government's drive to put more people into homeownership has received a double boost today with new equity loans for its Open Market HomeBuy scheme and the launch of a multi-million pound investment round to improve and increase the supply of social housing.

Open Market HomeBuy Equity Loans
An additional 20,000 households will be helped into homeownership by 2010, bringing the total to over 100,000, following a major agreement with three lenders to go ahead with the private financing of equity loans. This will strengthen the new range of HomeBuy schemes.

The new offer, agreed with HBOS, Nationwide Building Society and Yorkshire Building Society, will be available from October 2006 on a pilot basis for two years. Detailed discussions on implementing the equity loans are continuing with the Council of Mortgage Lenders (CML) and the lenders themselves.

The new loans will be based on the Government's new Open Market HomeBuy product, helping people to buy a home on the open market with an equity loan. They draw on best practice from the current successful open market product, principally through the Key Worker Living scheme.

Lenders will provide a 'top-up' equity loan along with the buyer's mortgage, for example, a 75 per cent mortgage with a 12.5 per cent equity loan, with the remaining 12.5 per cent being provided by the Government. This will stretch Government funding and has the potential to double the number of people we can help buy a home on the open market.

Buyers will be able to choose the best offer for them - ensuring choice and competition - whilst pricing and affordability levels will be in line with current low cost home ownership products.

Housing Minister Yvette Cooper said:

"There are plenty of families who want the chance of homeownership and have the steady income to support it, but they can't keep up with rising house prices. That's why it is so important to promote more shared equity schemes to give them a chance to get their first foot on the housing ladder."

Developers
A number of builders and developers, such as Barratt, Lovell, Bellway and Redrow, are already developing innovative schemes that offer shared equity products or discounted sale for first time buyers and others. Several smaller companies, including Merlion and Pocket, are also working with local authorities to find low cost innovative solutions to meet local needs. To encourage this, the Government is proposing to hold a summit with developers and others to explore innovative and cost-effective ways of helping develop more affordable products.

HomeBuy Research
Also published today is qualitative research, undertaken by NOP on behalf of ODPM, as part of the HomeBuy consultation process this year, which shows the HomeBuy proposals (which include those for Open Market HomeBuy) are attractive to the target eligible groups; social tenants, key public sector workers and other first time buyers in England.

Potential buyers considered the schemes as valid routes to meeting their aspirations, whilst the ability to move to full home ownership, with HomeBuy providing a 'stepping stone', was particularly welcomed. Charging options and other terms and conditions presented, such as the mechanism for increasing their equity share, were considered affordable and fair.

Aspects of the Social HomeBuy scheme which met with widespread approval included the minimum share, the discount (up to £16,000), and the five-year occupation threshold. The range of eligible groups was also positively received.

Overall, the Social HomeBuy concept was most popular amongst social renters aged between 36 and 49, who tended to have lived in their social home for longer and were committed to their local community.

Social HomeBuy Pilot Projects
The results from the research have helped the Government to set-up four Social HomeBuy scheme pilots.

The Government is working with the Guinness Trust, Notting Hill Housing Trust, the Places for People Group and Sovereign Housing Trust on initial pilots of the Social HomeBuy scheme. It is anticipated that four to five hundred households across England will be helped through the initial pilots during the coming months.

The results of the initial pilots will feed into the implementation of the wider Social HomeBuy programme, launching in April 2006. The Housing Corporation is currently considering bids submitted by Registered Social Landlords (RSLs) for funding for the scheme. Councils are also able to offer the opportunity to their tenants.

PFI Bidding Round
Also today the Government has launched its fifth Private Finance Initiative (PFI) bidding round, which will play an innovative role in the regeneration of local communities, with schemes that provide the mix of refurbishment, demolition and new-build, ensuring the best solution for the local area.

Housing Minister Yvette Cooper said:

"This bidding round provides more opportunities to deliver more choice and better quality housing for communities that need it. Besides increasing the supply of social rented housing PFI schemes will help deliver decent homes that are modern, warm and weatherproof."

Today's announcement comes on top of the recent approval of the Leeds Independent Living Scheme. This extra care scheme, which is also supported by the Health Department, includes 265 tenancies in new build accommodation for adults with a learning disability or mental health needs. The project will be going to the market shortly.

Expressions of interest for the PFI bidding round are due by 31 March 2006.

Design for Manufacture - more winners announced
In addition, the Deputy Prime Minister today announced the winning bidders for a further four sites in his Design for Manufacture competition, which challenges the housebuilding industry to design quality homes for a construction cost of £60,000. The competition is showcasing how construction costs can be driven down and design quality improved in the housebuilding industry.

Notes for Editors

HOMEBUY EQUITY LOANS

1. The Government announced full details of the new range of HomeBuy schemes, following a consultation exercise, on 14 September 2005. Copies of the original consultation document and the Government's formal response are available from the ODPM website at:
www.odpm.gov.uk/index.asp?id=1157039

2. There are three HomeBuy products:

* Social HomeBuy - enabling social tenants to buy a share in the property that they currently live in.

* New Build HomeBuy - enabling people to buy a share in a newly built property.

* Open Market HomeBuy - enabling people to buy a property on the open market with the help of an equity loan.

3. The new deal for Open Market HomeBuy with Nationwide Building Society, HBOS and Yorkshire Building Society helps us to expand the number of people we're able to help into home ownership. Between 2005 and 2010 we are already going to help over 80,000 households through a number of routes:

Route Households
helped

Key worker schemes 30,500

Other low cost home ownership schemes 26400

First Time Buyers Initiative 15,000

Planning obligations 10,000

Total 81,900

The new deal has the potential to double the number of people we can help with open market equity loans - giving a grand total of over 100,000.

4. Lenders will provide a 'top-up' equity loan along with the buyer's mortgage. The Government then also provides an equity loan. It is our intention that the lender's mortgage and equity loan will be linked as one 'product', ensuring simplicity and ease of understanding for buyers.

5. Pricing will depend on competitive forces, as buyers will be free to choose the best product for them. However, we have agreed a core proposition with lenders, and are working with them and the FSA to finalise the details. Our aim is to ensure the products are comparable with current schemes and affordable for our client groups.

6. When homes are sold, the outstanding value of the mortgage is repaid as the 'first charge'. The lender's and the Government's equity loans are then repaid at a level equivalent to the percentage of the purchase price they originally funded. If the value of the property has fallen, the mortgage is repaid first and the lender's equity loan takes priority over the Government's.

7. The new product will be available to the same groups as originally proposed for Open Market HomeBuy: Key public sector workers, social tenants, those on the housing register and other first time buyers identified as priorities by Regional Housing Boards.

8. The products will be available in all regions of England, subject to Regional Housing Board recommendations and the conclusions of the Housing Corporation's National Affordable Housing Programme funding round.

9. The new deal on Open Market HomeBuy programme and will be offered alongside the other new products. Zone Agents will market the schemes and provide information and advice to potential buyers in a given location - providing a one-stop-shop for all low cost home ownership options. Zone Agents are due to be appointed early next year.

10. Following discussions involving the Council of Mortgage Lenders (CML) and individual lenders, the Scottish Executive launched its new equity-sharing Homestake scheme earlier this year and is in further discussions with the CML about expansion of that programme.

11. Contact at CML is Peter Williams, Director General, Council of Mortgage Lenders, 3 Savile Row, London, W1S 3PB, tel: 020 7437 0075, www.cml.org.uk

PILOT PROJECTS FOR SOCIAL HOMEBUY
12. Details of the four pilot projects include:

* Anticipated sales of 400 to 500 homes, at a total cost to the public purse of around £4million.

* An England-wide geographical spread, including London, the South West and the North East.

* Minimum equity shares ranging from 25 per cent to 50 per cent.

* A testing of different options for charging, ranging from no charges on the 'top 25 per cent' of equity (Notting Hill) , up to a 3 per cent capped charge on retained shares (the others)

* 90 per cent plus of receipts to be reinvested in new social lets, with the remainder going to other housing priorities.

13. Further information on the pilots is available from the four RSLs:

* Places for People Group - Dave Power (01772 897505 )

* Sovereign Housing Group - Steve Murphy (01635 572231)

* Notting Hill Housing Trust - Catherine Turner (0208 357 4423)

* Guinness Trust - Kate Needham (01494 535823).

RESEARCH
14. As part of the development of the new HomeBuy proposals ODPM commissioned NOP to carry out qualitative research to explore consumer reactions to the new HomeBuy products.

15. 10 focus groups and 10 in-depth interviews took place in London, Birmingham, Manchester and South East England.
16. All respondents were interested in purchasing a home and represented a variety of potential purchasers, including social tenants, private tenants, key workers and other first time buyers. 17. The HomeBuy research is available from the ODPM website at: www.odpm.gov.uk/index.asp?id=1161971

PUBLIC FINANCE INITIATIVE BIDDING ROUND
Background

18. Housing PFI projects deliver investment in social rented housing through long-term contracts which fall into two groups, Non-Housing Revenue Account (Non-HRA) and Housing Revenue Account (HRA) PFI. For both types of scheme a local authority will enter into a contract with a private sector firm, or consortium of firms, who will raise funds to undertake the construction or refurbishment work. Financial support for the capital element of the project is provided by central government to the local authority via "PFI credits". The revenue element will usually be supported by the rents and service charges on a non-HRA scheme and by the local authority through its HRA on an HRA scheme. The contractor is paid on a performance basis. Performance is measured against the local authority's output specification for the stock, which describes the desired level of service.

19. Non-HRA housing PFI contracts will usually be for the provision of new social rented housing which will then be managed and maintained by a registered social landlord (RSL), with the tenants having the RSL as their landlord.

20. Within HRA PFI projects the local authority retains ownership of the stock and the tenants retain their secure tenancies. After the initial construction period, which can include wider regeneration work, the consortium will be responsible for repairs, maintenance and a range of housing management services to the stock. Priority in this round will be given to schemes with an emphasis on the delivery of regeneration and sustainable communities outputs.

21. Local authorities through the HRA will also have the opportunity to submit bids to build new council housing stock where this demonstrates value for money.

22. Main Facts and Figures:

- £85m worth of PFI credits were earmarked for early non-HRA schemes (1999 - 2003/04).

- £160m worth of PFI credits were earmarked for HRA pathfinder projects (2001/02).

- £600m has been allocated to support schemes in HRA Round 2 (2002/03 & 2003/04).

- £685m was allocated from Spending Review (SR) 2002 for the third bidding round (2004/05 & 2005/06).

- £1.22bn PFI credits were allocated from SR2004 (2006/07 & 2007/08). These resources are being used to support seven schemes from the last (fourth) bidding round and this new bidding round.

23. There are 10 signed Housing PFI contracts. Five are for non-HRA schemes - North East Derbyshire (August 1998), Derby (July 2000), Selby and Hammersmith & Fulham (March 2004) and Warrington (Sept 2004). Five are for HRA schemes - Manchester and Islington (2003), Reading (2004), Leeds and Newham (2005). In 1999 local authorities were chosen to pioneer the Housing Revenue Account (HRA) PFI scheme. There are six non-HRA schemes and nine HRA schemes in procurement. There are a further 12 schemes working on their Outline Business Case.

24. Expressions of interest has been announced in a fifth bidding round on 5 December 2005, with final bids are due by 31 March 2006.

25. The guidance for this round applies the £20m minimum limit as set by Treasury on the capital value of a single or batched PFI scheme.

DESIGN FOR MANUFACTURE
26. For full details of today's announcement please refer to news release at: www.odpm.gov.uk/index.asp?id=1002882

Public Enquiries: 020 7944 4400
News Releases: www.odpm.gov.uk