10 Jul, 2014/ by Homeward Legal /First Time Buyer

Housing Minister Kris Hopkins has just announced a big boost to the affordable homes programme. Millions of pounds is going to be made available which councils can apply to borrow so that they can build affordable homes.

£60 million in loans has already been earmarked for fifteen councils to enable them to build more than 1,000 new homes in their areas.

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But following requests from councils for more borrowing powers the Minister has just announced that a further £300 million will now be available. Councils will be able to bid for this money and Kris Hopkins hopes that local authorities will make full use of this opportunity.

Announcing this new funding, he said:

“Council housebuilding starts are now at a 23-year high - and more council housing has been built since 2010 than in the previous 13 years. But we can go further and with these new borrowing powers available I want authorities to act, and build the affordable homes their communities want.”

Money up for grabs to build more affordable homes

The minister made clear the money is “up for grabs” for councils who can put in bids that meet a simple criteria - ensuring taxpayers get the value for money they rightly expect.

The 15 councils that have successfully applied for borrowing include:

  • Birmingham Council - £10.6 million to build 186 new affordable homes
  • Wiltshire Council - £2.7 million to build 90 affordable homes
  • Cheshire West and Chester Council - £7.5 million to build 23 affordable homes
  • Hackney Council - £2.7 million to build 74 affordable homes
  • Dudley Council - £6.2 million to build 123 affordable homes

When they have been built many of these affordable homes will be available for purchase under the either under the shared ownership scheme or with the help of a Help to Buy equity loan. Both of these schemes help people who could not otherwise afford a home the chance to buy one.

Buying an affordable home with Shared Ownership

The shared ownership scheme is designed to help people who are unable to afford a large mortgage. Under this scheme buyers purchase a share in a property - between 25% and 75% of the home's value. The remaining share is retained by the council or housing association and the buyer has to pay a notional rent on this share.

Buyers can get mortgages to purchase their share from an ordinary high-street lender in the usual way.

Homes sold on a shared ownership basis are sold with a long leasehold title and the title is registered in the name of the buyer. To all intents and purposes the property becomes the buyer's, and they will be responsible for maintaining and repairing the property in the same way as any other property owner.

The owner can purchase further shares in the property at any time under a procedure known as 'staircasing.' The amount payable for such further shares has to be calculated according to the value of the property at the time when the share is purchased, not at the time of the original purchase.

If a property is staircased then the rent is reduced in proportion. When staircased to 100% it becomes the buyer's property outright, and no further rent is payable - if the property is a house then at this point the freehold title will be conveyed to the buyer. However flats remain leasehold in the usual way.

Shared ownership homes can be sold but the council or housing association may have the right of first refusal to buy at current market value, or to nominate a purchaser. But if they decline then the property can be sold on the open market.

Obviously buyers will only be willing to pay for the value of the owner's share. However if a buyer wants to purchase the property outright they can make arrangements to buy the remaining share at the time of purchase.

Help to Buy Equity Loans - another way to buy an affordable home

The Help to Buy Equity Loan scheme is aimed at buyers who can afford a reasonable mortgage but do not have a sufficiently large deposit available.

Provided that a buyer can put up a deposit of at least 5% and is able to get a mortgage from a high-street lender to cover up to 75% of the price the government will provide a further loan of up to 20% of the property's value.

This equity loan is free of any interest or fees for the first five years. After that a fee of 1.75% of the loan becomes payable in the sixth year, and this fee is increased in subsequent years by using the Retail Price Index plus 1%. These fees do not count as part-repayments of the loan.

Properties are registered in the name of the buyer, and a note of the loan is registered as well as the first mortgage.

When a property is sold the owner will have to repay the loan. But unlike an ordinary mortgage the amount repayable will depend upon value of the property at the time of sale and not the amount originally borrowed.

Say a buyer bought a home for £100,000 with a 20% equity loan of £20,000. If the home is later sold for £120,000 the buyer will have to repay £24,000 (i.e. 20% of £120,000) and not £20,000.

But if the property's value had dropped at the time it was sold then the amount repayable would be reduced accordingly - taking the previous example, if the home could only be sold for £90,000 then the amount required to clear the loan would be just £18,000.

There are various restrictions on both schemes and buyers have to show that they meet the appropriate eligibility criteria. Help to Buy agents can provide further information and advise whether you will be eligible.

Both these scheme have proved popular with buyers and have enabled many thousands to get a foot on the housing ladder. As with all property purchases it pays to get independent professional advice to ensure that you are fully informed of all the details before committing yourself.

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