Capital Funding Guide

12. Social HomeBuy

This chapter provides details on the Social HomeBuy product and the Agency's requirements to be followed by registered providers.

1. Overview

1.1 Purpose

1.1.1 This section sets out the characteristics of Social HomeBuy and the Agency’s requirements to be followed by Registered Providers.

1.1.2 It is a condition of our funding that Registered Providers comply with these procedures and any subsequent requirements.

1.2 Context

1.2.1 Social HomeBuy allows eligible tenants of Registered Providers who are either ex RSLs or local authorities and who occupy eligible properties to purchase their social or affordable rented housing at discount either outright or on shared ownership terms (i.e. part buy/part rent – please see Help to Buy: Shared Ownership 1.3.1.

1.2.2 Social HomeBuy discounts are funded under section 19 of the Housing and Regeneration Act 2008.

1.2.3 Historical grant paid to develop or acquire property sold to tenants under the Social HomeBuy programme, and grant paid to cover Social HomeBuy discounts will be subject to the Disposal Proceeds Fund regime as required by section 177 of the Housing and Regeneration Act 2008. Disposal Proceeds Fund is the remit of the Regulator - please see DPF requirements and guidance for more information, including the requirements for calculating contributions to the Disposal Proceeds Fund following outright and shared ownership sales.

Changes to the Disposal Proceeds Fund from 6 April 2017

From 6 April 2017, there is no longer a requirement to add any new net receipts from disposals to a provider’s Disposal Proceeds Fund. However, any provider with an existing Disposal Proceeds Fund at 6 April is required to operate the Fund until the funds in there are exhausted or by April 2020, whichever is the later. That means that providers will have to continue to account for Disposal Proceeds Funds, submit annual Disposal Proceeds Fund returns in IMS and allocate Disposal Proceeds Funds in line with the current requirements, (this includes the accrual of interest on Disposal Proceeds Fund balances in place at 6 April).

Further guidance to reflect the wind down of Disposal Proceeds Fund over the period to April 2020 will be issued by the Regulator in due course. This chapter will then be updated accordingly.

1.2.4 In respect of property owned by former RSLs discounts can only be paid by the Agency. Discounts for properties owned by former RSL Registered Providers cannot be funded by local authority registered providers.

1.3 Main features of the scheme

1.3.1 Social HomeBuy can only be used to purchase self-contained property for rent. There are eligibility criteria for both properties (these are similar to those for Right to Buy/Right to Acquire) and tenants.

1.3.2 Where a Registered Provider (ex RSL or local authority) has decided to offer Social HomeBuy, purchasers are allowed to buy their rented home outright at the outset or on shared ownership terms. The cost of any share will be based on a percentage of the full market value.

1.3.3 If buying on shared ownership terms the range of shares can be any amount between 25% (minimum purchase) and 90% The final staircasing share must be a minimum of 10%. Please see section 6.2.1 below.

1.3.4 All Social HomeBuy leases must allow the purchaser to buy further shares and staircase to full ownership.

1.3.5 The purchaser is entitled to a discount; and if buying on shared ownership terms a discount is available on both the initial and subsequent shares purchased. The discount limits are the same as those applying to properties bought on Right to Acquire terms in that locality. Discounts are pro-rated for shared ownership purchases according to the size of the initial and any subsequent share purchased. For an example please see below. Please also see section 8 below.

For example if a 50% share of a property is purchased then 50% of the applicable Right to Acquire discount will be payable to assist the purchase. Subsequent staircasing discounts will be calculated on the same principles. For example if a further 25% share is purchased the purchaser would benefit from a further discount equivalent to 25% of the applicable Right to Acquire discount.

1.3.6 The discount is repayable if the purchaser sells the property within five years, on the same basis as the Right to Acquire/Right to Buy.

1.3.7 The current Right to Acquire discounts are set out in the Housing (Right to Acquire) (Discount) Order 2002 (SI 2002 No 1091) and rural designated areas SIs 1997 numbers 620-625 and 1999 number 1307.

1.3.8 Landlords may offer their tenants an alternative property to purchase in certain circumstances - see section 8.4.3 below.

1.3.9 Social HomeBuy gives providers the opportunity to:

  • Sell their permanent social and affordable rented housing stock to secure or assured tenants at a discount
  • Include non-grant funded property
  • Offer home ownership to tenants who do not qualify for the Right to Acquire/Right to Buy or cannot afford to purchase outright
  • Provide replacement affordable homes for rent by using the disposal proceeds receipts from sales together with private finance
  • Develop mixed, balanced and sustainable communities
  • Use sums in their Disposal Proceeds Fund to convert existing tenanted property to provide large family homes where required as per the Regulator’s DPF guidance

1.3.10 Social HomeBuy gives eligible tenants the opportunity to:

  • Purchase their current home which may not qualify for Right to Acquire/Right to Buy because it was provided without grant funding or grant funded prior to 1 April 1997 (some exclusions apply - see Right to Acquire - section 3)
  • Purchase their current home on shared ownership terms, making the purchase affordable and sustainable
  • Benefit from a pro-rata purchase discount regardless of whether they buy outright or on shared ownership terms

1.3.11 Scheme submissions must comply with the funding conditions as accepted and confirmed on line by the provider’s System Administrator at the beginning of the financial year, plus any further conditions that may be issued by the Agency in year. See Finance chapter - section 2.

1.4 Notifications to the Regulator

1.4.1 Registered Providers do not need to notify the Regulator when issuing shared ownership leases that cannot be classed as assured tenancies (e.g. because of low rent).

1.5 Targeting and publicity

1.5.1 Registered Providers (ex RSL or local authority) offering Social HomeBuy are responsible for distributing publicity material to their tenants and are required to publish their policy. The Agency has produced publicity information which is available on the Agency’s website. Registered Providers (ex RSL or local authority) can download this information to provide to tenants in its entirety as a supplement to its own publicity/promotional material. General information about the product should be available from Help to Buy Agents – please see chapter 13 Glossary for a definition of Help to Buy Agents.

1.6 Funding arrangements

1.6.1 When a Registered Provider (ex RSL or local authority) offering Social HomeBuy agrees an allocation from an eligible tenant with an eligible property, they should claim grant from the Agency in line with the requirements of the Capital Funding Guide, as the need arises; in a similar way to claiming grant for Right to Acquire purposes.

1.6.3 Grant should be claimed to cover the discount following completion of the sale. Where tenants are purchasing on shared ownership terms grant should be claimed on completion of the initial sale, and balances claimed as appropriate on completion of any subsequent shares, pro-rated to the share that is purchased.

1.6.4 Following any Social HomeBuy sales Registered Providers (ex RSL or local authority) are required to credit the net sales proceeds to their Disposal Proceeds Fund. For details on this topic see the Regulator’s DPF guidance.

1.6.5 Registered Providers (ex RSL or local authority) must consult their private lenders prior to deciding to offer Social HomeBuy to ensure properties can be released from the lender’s security.

2. Funding principles

2.1 General

2.1.1 Social HomeBuy is funded under section 19(3) of the Housing and Regeneration Act 2008 as Financial Assistance. This is distinct from Social Housing Assistance granted to develop schemes.

2.1.3 Social HomeBuy sales must be based on the market value of the property as determined by a Royal Institution of Chartered Surveyors (RICS) qualified independent valuer.

2.1.4 Sales on shared ownership terms are based on a percentage of the full market value of the property. Valuations are required both at the initial sale and on any subsequent staircasing. The cost of the valuation for an initial sale is met by a Registered Provider (ex RSL or local authority) from the proceeds of sale. The cost of valuation for staircasing sales is to be met by the purchaser under the terms of the staircasing provisions in the Social HomeBuy shared ownership lease.

2.2 Rents and service charges

2.2.1 The requirements regarding the rent and service charges for Social HomeBuy are the same as for Shared Ownership (see Help to Buy: Shared Ownership section 4.3). Also see additional requirements at 6.6.1 below.

2.2.2 The level of the service charge should not vary from the proposed service charge notified at the formal offer stage, see section 6.7.

2.2.3 Rents on unsold shares in Social HomeBuy (where 100% is not owned) should conform to the requirements for shared ownership. Please see Help to Buy: Shared Ownership – Rents and Service Charges below.

2.2.4 Where rents are not in line with the published requirements, it could lead to grant being denied or withheld until the rents including housing benefit eligible service charges are brought into line.

2.3 Financial viability

2.3.1 The requirements regarding the applicant’s financial capacity for Social HomeBuy are the same as for shared ownership.

2.3.2 In considering whether to provide Social HomeBuy Registered Providers (ex RSL or local authority) are expected to have taken in to account the proposed Social HomeBuy receipt and rent income, together with long term operational costs, including the repayment of loan principal and interest, can be met. Any initial revenue deficits should be within the provider’s general capacity. The Regulator will monitor the effect of development and the Registered Provider’s (ex RSL or local authority) general financial status. Registered Providers (ex RSL or local authority) need to be mindful of the permitted uses under Disposal Proceeds Fund rules (please see DPF guidance) in regards to the proposed application of these receipts.

3. Scheme administration

3.1 General

3.1.1 Registered Providers (ex RSL or local authority) providing Social HomeBuy should claim grant from the Agency via IMS. Claims must not be made in advance of need and should be made following completion of either:

  • Outright sale or
  • Initial share sold and
  • Any subsequent shares sold

4. Applicant eligibility

4.1 General

4.1.1. This section sets out the applicant criteria, details of public sector landlords, and grounds for rejection or suspension of eligibility.

4.2 Eligibility criteria

4.2.1 Applicant eligibility criteria for Social HomeBuy are the same as for Right to Acquire, (please see Right to Acquire section 2) except that, where tenants are purchasing on shared ownership terms, Registered Providers (ex RSL or local authority) will be required to carry out affordability checks to establish whether the applicant can afford and sustain Social HomeBuy. Registered Providers (ex RSL or local authority) may wish to use the Affordability Calculator and Guidance for this. However, Registered Providers (ex RSL or local authority) will need to consider the discount available to the purchaser when assessing affordability.

4.2.2 Registered Providers (ex RSL or local authority) may offer Social HomeBuy to tenants who have the Right to Acquire, Right to Buy or Preserved Right to Buy (Right to Buy), but tenants must opt for one product or another. Discounts cannot be combined, nor can a Registered Provider (ex RSL or local authority) claim grant other than for funding discounts due in respect of either Social HomeBuy or Right to Acquire.

4.2.3 Tenants who are eligible for Social HomeBuy and are living in an eligible property will have the additional option to purchase on shared ownership terms under Social HomeBuy if they cannot afford to buy outright under the statutory schemes. Those tenants whose homes qualify for a higher Right to Buy discount than the local Right to Acquire discount will be limited to the Right to Acquire discount limits if purchasing through Social HomeBuy.

4.3 Public sector landlords

4.3.1 A tenancy with any of the public bodies listed in Right to Acquire section 2.3 will count as an eligible residency for Social HomeBuy purposes.

4.4 Anti-social behaviour

4.4.1. Applications can be rejected or suspended on the grounds of anti-social behaviour (see Right to Acquire section 2.5 and following paragraphs).

4.4.2 Some tenants may be eligible to apply for Social HomeBuy whilst also having the Right to Buy or Acquire (see section 4.2.3 above). Tenants cannot apply to buy under both statutory and voluntary schemes, but when processing Social HomeBuy applications Registered Providers (ex RSL or local authority) will need to take in to account which of the following categories (if any) an applicant falls in to:

  • Social HomeBuy applicants who may be entitled to Right to Acquire/Right to Buy and who are already subject to a ‘suspension order’
  • Social HomeBuy applicants who could be subject to an application for a Right to Acquire/Right to Buy ‘suspension order’ during their Social HomeBuy claim and sales process
  • Social HomeBuy applicants who don’t currently have the Right to Acquire/Right to Buy but are in the process of meeting the five year tenancy qualification period and could not be the subject of a ‘suspension order’ until they qualify for Right to Buy/Right to Acquire but where Registered Providers (ex RSL or local authority) may wish to apply a ‘suspension status’
  • Social HomeBuy applicants who don’t have the Right to Acquire/Right to Buy and will therefore never be the subject of a ‘suspension order’ but where Registered Providers (ex RSL or local authority) may wish to apply a ‘suspension status’

4.4.3 As advised in above in section 4.4.2 where a Right to Acquire/Right to Buy ‘suspension order’ already exists Registered Providers (ex RSL or local authority) should apply a ‘suspension status’ in respect of Social HomeBuy applications. Where Registered Providers (ex RSLs or local authority) are in the process of applying for a Right to Acquire/Right to Buy ‘suspension order’ they should simultaneously consider applying a ‘suspension status’ to any Social HomeBuy applications.

4.4.4 In cases of doubt providers should initially approach their operating area for further guidance.

5. Property eligibility

5.1 General

5.1.1 Not all properties owned by Registered Providers (ex RSL or local authority) are subject to Social HomeBuy. Eligible, excluded and exempt properties are set out below.

5.2 Eligible properties

5.2.1 Registered Providers (ex RSL or local authority) may offer Social HomeBuy across all their social and affordable rented stock (subject to mandatory exclusions below) or target properties for sale in particular locations, for example, where they wish to introduce tenure mix on an estate. Stock that was not previously grant funded may be included.

5.2.2 Some properties that would be ineligible for Right to Acquire/Right to Buy may be eligible for Social HomeBuy. For examples of properties funded by grant prior to 1997 that are ineligible for Right to Acquire but could be eligible for Social HomeBuy, please refer to sections 1.3.9 and 1.3.10.

5.3 Excluded properties

5.3.1 Properties excluded from the Right to Acquire are excluded from Social HomeBuy - for example properties in designated rural areas, in designated protected areas or those let in connection with employment.

5.3.2 For details on ineligible and excluded properties see Right to Acquire section 3, and for an explanation of designated protected areas see Help to Buy: Shared Ownership section 1.3.24.

5.4 Exempt properties

5.4.1 In addition to the mandatory exclusions outlined in 5.3 above (that is properties excluded from Right to Acquire) Registered Providers (ex RSL or local authority) may consider it appropriate to exempt other categories of properties. For examples please see below.

Examples are:

  • Homes which, because of their type or location, would be difficult to replace
  • Homes where the current value is below the cost of provision, including the costs of rehabilitation or conversion but not repair
  • Homes subject to restrictive covenants or agreements regarding their continued use and/or use of any sales proceeds, excluding nomination agreements which are not part of a section 106 agreement or similar covenant
  • Homes where the provider is carrying out major works improvement or can demonstrate that the contract will be let within the next three years

5.4.2 Registered Providers (ex RSL or local authority) must remember that they have the opportunity to exercise the right of first refusal in respect of future re-sales and therefore should limit the exercise of this exemption as far as possible.

5.5 Policy requirements

5.5.1 Registered Providers (ex RSL or local authority) that choose to participate in the Social HomeBuy initiative must draw up a published policy, (which must be in place prior to any sales and marketing of the product) specifying a list of properties, or types of properties, that are excluded or exempted from their programme.

5.5.2 When drawing up their policy, providers should consult those local authorities in which they are proposing to offer Social HomeBuy to tenants. If no policy is in place prior to sales and marketing, it will be assumed that all properties in that local authority will be included in the programme, other than those covered by the mandatory exemptions.

5.5.3 This policy must be easily and readily available to tenants and Registered Providers (ex RSL or local authority) must be seen to be operating it on a fair and consistent basis. It would not be acceptable, for example, for a Registered Providers to decide whether to sell on a case-by-case basis in response to demand from individual tenants.

5.5.4 Once published, the policy must apply to the whole of the Registered Provider’s (ex RSL or local authority) programme. However, Registered Providers (ex RSL or local authority) can vary the list of properties exempt from the programme during the programme period subject to the agreement of the operating area.

5.5.5 Where a tenant has received a formal offer from the Registered Provider (ex RSL or local authority), and provided that the tenant responds within eight weeks, and complies with the requirements of the product, they must be allowed to complete the purchase - even if the policy has changed and that property is now in an exempt category.

6. Shared Ownership leases

6.1 General

6.1.1 The Agency’s standard requirements relating to shared ownership leases are set out in Help to Buy: Shared Ownership section 5. These requirements all apply to Social HomeBuy schemes.

6.1.2 Additional requirements that are specific to Social HomeBuy are set out in this section.

6.1.3 To assist Registered Providers (ex RSL or local authority) the Agency has published model Social HomeBuy shared ownership house and flat leases. Copies of both can be located in Help to Buy: Shared Ownership section 11.

6.2 The price

6.2.1 The price payable by the tenant (price of the Social HomeBuy lease) upon the grant of a lease plus the available discount must be equal to the relevant percentage of the full market value of the property as assessed by an independent RICS qualified valuer (please see section 8 below). The initial share purchased must be at least 25% (please see section 1.3.3 above). Tenants should buy the largest initial share that they can afford and sustain, to the nearest percentage point. Shares are not restricted to the nearest 5% e.g. they can be 26%, 27% etc. However the minimum additional share that can be purchased is 10% which also applies when buying the final share. For example, if a shared owner already owns 85% or 87%, in order to buy the property outright they would need to purchase the remaining 15% or 13% accordingly.

6.3 Rent waiver

6.3.1 As with shared ownership, rent will be payable on the unsold equity share. For more information, please see section 7 below.

6.3.2 Registered Providers (ex RSL or local authority) who wish to waive rent for Social HomeBuy purchasers may do so from within their own resources. Rent may be waived for a specified period e.g. the first few years or for longer.

6.4 Nomination and right of first refusal

6.4.1 Registered Providers (ex RSL or local authority) have the right to nominate the next purchaser/s when the current Social HomeBuy leaseholder wishes to sell their share. Additionally Registered Providers (ex RSL or local authority) have the right of first refusal in respect of both houses and flats where owners originally purchased outright or purchased on shared ownership terms and have subsequently staircased to 100% and who now wish to sell.

6.5 Repayment of Social HomeBuy discount

6.5.1 If a shared owner sells their initial or subsequent share within five years of benefiting from the Social HomeBuy discount, the discount is repayable (see section 8.3 below).

6.5.2 Repayment of the Social HomeBuy discount for a five year period is required to be protected by a restriction that must be entered on the Land Registry documents. The covenant for repayment must be inserted in conveyances and Social HomeBuy shared ownership leases. A model form of wording is available at Right to Acquire section 4.12.

6.5.3 The Registered Provider’s (ex RSL or local authority) solicitors must insert the Social HomeBuy discount % figure in the particulars of the shared ownership lease. This figure must equate to the percentage value of the discount given to the buyer compared to the property’s sale price. For further guidance please see below.

Example

Property sale price £150,000
Right to Acquire discount for area £16,000
Share purchased 75%
Discount given to the buyer £12,000
Percentage value 8% (£150,000 divided by £12,000)

6.5.4 Social HomeBuy discounts payable in respect of subsequent staircasing sales will also be subject to a five year repayment period. Individual five year repayment periods must be applied to each subsequent staircasing and should run from the date the further shares are purchased. For an example please see below. Registered Providers (ex RSL or local authority) will need to keep accurate records.

Example

Initial purchase of 50% 17 May 2016 Discount repayment period 18 May 2016 to 17 May 2021
Further 50% purchased 10 June 2018 Subsequent discount repayment period 11 June 2018 to 10 June 2023
Homeowner sells the property during 2019 both discounts will be repayable
Homeowner sells the property during 2022 only the subsequent discount would be repayable
Homeowner sells the property during 2024 no discount is repayable

6.5.5 The requirement to repay the discount consists of a charge that must rank immediately after that of the purchaser’s lender. If, in the future, the new owner wishes to extend their mortgage to fund works to the property the Registered Providers (ex RSL or local authority) may postpone its charge in favour of the lender. The charge should not be postponed for any other reason.

7. Rents and service charges

7.1 General

7.1.1 The requirements in relation to the setting of rents and service charges in Social HomeBuy shared ownership leases are the same as for shared ownership (please see Help to Buy: Shared Ownership section 4).

7.1.2 The shared ownership requirements regarding quality of management and maintenance services, and service charges apply to Social HomeBuy, but there are also additional requirements which are set out in the Right to Acquire chapter (see also below).

7.2 Quality of Management & Maintenance Services & Service Charges

7.2.1 See Help to Buy: Shared Ownership 4.3 for the shared ownership requirements.

7.2.2 Although Social HomeBuy is not subject to the statutory provisions of the Right to Acquire/Right to Buy, Registered Providers (ex RSLs or local authority) are required to give Social HomeBuy shared ownership leaseholders similar protection as Right to Acquire/Right to Buy purchasers with regard to service charge and improvement contribution estimates. Provisions concerning service charge estimates and sinking fund contributions must be set out in the shared ownership lease. Please see Right to Acquire 4.8 for the additional requirements.

7.2.3 Registered Providers (ex RSL or local authority) may use their discretion should they wish to make a contribution towards any maintenance costs for tenants purchasing Social HomeBuy on a shared ownership basis. Such contributions will not be eligible for grant funding nor is this a permitted use of the Recycled Capital Grant Fund or the Disposal Proceeds Fund.

8. Processing the sale

8.1 General

8.1.1 For the purposes of this section of the guide, the term landlord will be used instead of the term Registered Providers (ex RSL or local authority), and applicants will be referred to as tenants. This is to avoid any confusion over which part of the process applies to which party.

8.1.2 As per section 1.2.3, receipts from Social HomeBuy sales are required to be credited to the landlord’s Disposal Proceeds Fund. In the event that a tenant’s application for Social HomeBuy does not complete, landlords are advised that the cost of abortive valuation, legal and survey fees may be deducted from the sale proceeds of a subsequent sale which does go ahead, provided this does not result in a negative balance for the Fund. If deductions would lead to a negative amount, the balance of abortive costs must be deferred until the next sale that proceeds.

8.1.3 It is not the Agency’s intention to be prescriptive as to the sales process and administration. However, in the interests of efficiency the Agency would encourage landlords to take steps to identify serious purchasers and minimise unnecessary administration. The Agency therefore recommends a two stage sales process to determine:

  • Eligibility (of both the tenant and the property)
  • The calculation of the sale price and the discount available

8.1.4 The first stage, following enquiries from tenants, is to provide broad brush information to enable tenants to make an informed choice as to whether to proceed or not with a formal application taking in to account affordability and sustainability criteria (Stage 1A). For further information please see section 8.4.2 below.

8.1.5 If tenants wish to proceed and respond with a formal written application landlords will be required to check:

  • Whether the property is eligible to be bought
  • Whether the tenant(s) is eligible for Social HomeBuy (Stage 1B)

Having ascertained whether or not the main criteria have been met it is at this point that landlords must notify tenants accordingly (Stage 1B) and if eligible, ask tenants to confirm their interest in proceeding with their application.

8.1.6 The second stage involves confirmation of:

  • The sale price (following a formal valuation)
  • The equity to be purchased
  • The discount entitlement
  • The formal mortgage offer
  • The associated costs and provisions

8.1.7 The above details will form the basis of the formal offer and must appear in the contract documentation.

8.1.8 The criteria on which applications might be prioritised, which might reflect local circumstances, must be included in the landlords’ published policy statements.

8.2 Discounts

8.2.1 A discount is available when purchasing eligible Social HomeBuy property, based on the percentage of the property being bought (please see section 1.3.5). Purchasers are not entitled to more than the maximum discount available for the locality in which they are purchasing.

For a worked example please see below.

The Social HomeBuy discount is based on the Right to Acquire discount applicable in the locality where the purchase is being made. If the tenant buys a 40% share of the property in an area where the full discount is £16,000, they will be entitled to a discount worth 40% of £16,000.

The purchase price is funded as follows:

Property value £180,000
Share purchased £72,000
Mortgage/deposit £65,600
Discount £6,400 (i.e. 40% of the Right to Acquire discount of £16,000)
Remaining discount available for further shares purchased £9,600 (£16,000 - £6,400)

8.2.2 Should the Social HomeBuy discount represent more than 50% of the value of the property (unlikely but theoretically possible) the maximum amount of discount available shall be 50% of the value of the property. This will apply to situations where the tenant is looking to purchase the property outright.

8.3 The tenant’s application

8.3.1 Prior to submitting a formal written application tenants would normally make an initial expression of interest in purchasing their home. Landlords are required to respond to an expression of interest as per section 8.4 2 below (Stage 1A).

8.3.2 For the process to proceed beyond stage 1A, a formal written application to purchase under Social HomeBuy must be made by the tenant and sent to the landlord. On receipt of the written application, the landlord must respond confirming (or not) the tenant’s eligibility as per section 8.4 below (Stage 1B).

For a comment on the written application please see below.

Whist it is a requirement that a Social HomeBuy application is made in writing, there is no requirement that landlords produce application forms.

However, landlords are encouraged to provide application forms to ensure that applicants provide all the relevant information. Such forms should be in plain English.

8.4 The landlord’s response

8.4.1 Response to an initial enquiry

8.4.1.1 When discussing applications to purchase with tenants, landlords must encourage them to buy the maximum share they can afford AND sustain. For further guidance please see below.

In assessing affordability, landlords should refer guidance in the Help to Buy: Shared Ownership chapter – section 6 Affordability.

Further guidance is available to lenders and mortgage intermediaries when assessing a borrower’s ability to repay a loan, and can be found by accessing the FCA’s website.

8.4.1.2 Landlords must formally respond to all expressions of interest. Please see below for a model response.

The Stage 1A letter is a response to the tenant who has registered an interest in Social HomeBuy. It is anticipated that it would be included in an information pack which contains an application form.

Stage 1A - Following tenant registering interest

8.4.1.3 Eligibility checks are not required at this stage (Stage 1A) and the landlord is only required to provide indicative cost and discount information based on the assumption that the tenant is eligible. The information that must be provided at this stage is:

  • An indication of the market value of the property to be sold. At this stage a formal valuation is not required but can be based on comparative house price details from appropriate commercial real estate or local estate agents’ particulars. By using a web based assessment tool to determine the actual, or an approximate, house price valuation, costs can be confirmed or minimised at this point for both the landlord and the tenant should they decided not to proceed
  • The total cost of purchasing outright or a share and how it is calculated. The total amount of discount applicable if purchased outright at that time in that location, (it is recommended that landlords also provide an example of how much discount might be available if purchasing on shared ownership terms)

For worked examples please see below.

Estimated value of home: £180,000 Maximum Discount: £9,000

Your share in percent Purchase Price Social HomeBuy Discount Share Price Monthly Mortgage Monthly rent @ maximum of 3% of unsold equity Monthly Service Charge Total Monthly Charge
25 £45,000 £2,250 £42,750 £202 £337.50 £100 £639.50
30 £54,000 £2,700 £51,300 £243 £315 £100 £658.00
35 £63,000 £3,150 £59,850 £283 £292.50 £100 £675.50
40 £72,000 £3,600 £68,400 £324 £270 £100 £694.00
45 £81,000 £4,050 £76,950 £364 £247.50 £100 £711.50
50 £90,000 £4,500 £85,500 £404 £225 £100 £729.00
55 £99,000 £4,950 £94,050 £445 £202.50 £100 £747.50
60 £108,000 £5,400 £102,600 £485 £180 £100 £765.00
65 £117,000 £5,850 £111,150 £526 £157.50 £100 £783.50
70 £126,000 £6,300 £119,700 £566 £135 £100 £801.00
75 £135,000 £6,750 £128,250 £607 £112.50 £100 £819.50
80 £144,000 £7,200 £136,800 £647 £90 £100 £837.00
85 £153,000 £7,650 £145,350 £688 £67.50 £100 £855.50
90 £162,000 £8,100 £153,900 £728 £45 £100 £873.00
95 £171,000 £8,550 £162,450 £769 £22.50 £100 £891.50
100 £180,000 £9,000 £171,000 £809 £0 £100 £909.00

Assumptions

  1. Social HomeBuy Discounts are pro-rated for depending on the size of the share being purchases. Where a property has a maximum discount available of £9,000 and a purchaser wishes to buy 25% the maximum discount available is £9,000 x 25% - £2,250

  2. Share price = purchase price – discount

  3. Monthly mortgage figures are obtained from the Halifax mortgage calculator

It is assumed that:

  • the interest rate is 3%
  • loan term is 25 years
  • payment type is repayment
  1. Monthly rent = (outstanding loan value x (interest rate/100)) / 12

It is assumed that the provider charge on rent is 3%

e.g. for a 25% share the outstanding loan is £135,000 the monthly rent is

= (£135,000 x (3/100)) / 12

= £135,000 x 0.03 / 12

= £337.50

  • The total amount of discount applicable if purchased outright at that time in that location, (it is recommended that landlords also provide an example of how much discount might be available if purchasing on shared ownership terms)
  • If purchasing on shared ownership terms the total rent and possible service charges payable on the property

8.4.1.4 This response must advise the tenant that if s/he wishes to proceed based on the indicative information that a formal written application must then be made.

8.4.2 Response to a Formal Application

8.4.2.1 In response to a formal written application (on an application form if applicable), landlords must now determine both the tenant’s and the property’s eligibility by checking:

  • That any application form has been correctly completed and signed and dated by the tenant(s)
  • That the tenant(s) are on a secure or assured tenancy (NB: assured shorthold tenancy or long leaseholders are excluded from the Social HomeBuy initiative)
  • The property is not in an excluded or exempt category
  • The tenant(s) has been a public sector tenant for five years (see section 4 above)
  • Where the property is charged to a private lender the lender is willing to release their charge
  • Whether there is an effective possession order
  • Whether the tenant is the subject of a suspension order (see section 4 above)
  • The tenant has certified in the application that he/she is not an undischarged bankrupt
  • Whether the tenant or co-purchasers have previously received a discount to purchase a property from a public sector landlord. For further guidance please see below

Examples of previous discounts include Cash Incentive Schemes from an LA, and discounts under the Right to Acquire, Right to Buy/Preserved Right to Buy or Voluntary Purchase Grant. Where a tenant has previously received a discount to purchase a property from a public sector landlord, the amount of discount due under Social HomeBuy is reduced by the amount previously received. This is not applicable to cases where the tenant repaid the whole of the discount on disposal within a repayment period.

Example

A tenant lives in an area where the discount is currently £16,000 and previously purchased a property through the Right to Buy and, receiving a £10,000 discount:

Discount due for Social HomeBuy £16,000
Previous discount/grant to be deducted £10,000
Social HomeBuy discount reduced £6,000 (and then pro-rata to the share purchased)

The landlord should therefore check their records to try to find out whether the applicant has received a discount on previous property.

However, this may be impossible if the tenant obtained a discount to purchase property in the past, at a different place, with a different landlord.

The landlord’s application form should therefore include a question on this matter, obtaining written confirmation from the tenant as to whether or not they have received a discount in the past.

8.4.3 Offer of an alternative property

8.4.3.1 It is anticipated that tenants will normally look to purchase the home that they are currently renting. There is no requirement for landlords to offer an alternative property, but they may choose to do so. For further guidance please see below.

If the landlord offers an alternative property to an eligible tenant then the tenant must be made aware there is no obligation placed on them to accept the offer and they may proceed to purchase their current property if they so wish provided it is included in the programme.

The landlord should only consider offering an alternative property if the property is a naturally occurring void; the landlord is not permitted to deliberately keep properties vacant for sale under Social HomeBuy or offer new grant aided properties built under any other programmes.

8.4.3.2 On completion of the checks detailed at 8.4.3 the landlord must respond to the tenant either confirming or denying eligibility.

8.4.3.3 Where the tenant or property is ineligible a detailed explanation must be given. Where eligibility is confirmed the tenant must be asked if they still wish to proceed with their application, and to arrange an appointment to discuss in detail how the product works.

8.4.3.4 A standard response based on the Stage 1B letter, should be sent. Please see below for a model response.

8.4.3.5 The above letter and information must be sent to the tenant within four weeks from receipt of their written application.

8.5 Tenant’s response agreeing to proceed

8.5.1 Following confirmation from their landlord that they are eligible to proceed the tenant must notify the landlord in writing within four weeks that they wish to proceed to stage 2 of the purchase process.

8.5.2 Landlords have discretion to extend the period for responding if there are reasonable grounds for doing so.

8.5.3 During this period the tenant will also be required to meet with the landlord or the landlord’s advisor to discuss the product in more detail and undergo a formal affordability and sustainability assessment.

8.6 Landlord’s formal offer

8.6.1 Having received the tenant’s written application, met with the tenant and undertaken affordability and sustainability assessments, the landlord should now be in a position to make a formal offer to the tenant. Please see below.

8.6.2 It is at this point that a formal valuation of the property should be obtained (please see 8.7 below). If landlords wish to obtain the formal valuation before this point to prevent any undue delay in the process they may do so, at their own discretion and risk.

8.6.3 The formal offer must include the following information:

  • The value of the property to be sold
  • The total cost of purchasing outright or a share and how it is calculated
  • The total amount of discount applicable for the purchase at that time in that location
  • The total rent payable on the property
  • An estimate of the annual service charge/including sinking fund contributions (see Right to Acquire section 4.8)
  • A requirement that the tenant formally respond to the offer within four weeks if they wish to proceed

For a standard Stage 2 Formal Offer letter please see below.

The Stage 2 letter is the formal offer to the tenant providing additional detailed information enabling the tenant to make an informed decision whether or not to proceed with the purchase, and the next step actions required.

Stage 2 - Formal valuation and offer

8.6.4 Landlords must ensure that the formal offer and acceptance are subject to contract, are in writing and that the terms of the sale are agreed by both parties.

8.6.5 Please see guidance below for a suggested form that landlords could enclose with their formal offer notice for use by tenants to confirm an intention to proceed with the purchase.

The following sample tenant’s response letter can be included by landlords with their formal Offer Notice to be used by tenants confirming their intention to proceed with the purchase.

Sample tenant’s response form

8.7 Sales valuations

8.7.1 Most of the valuation requirements for Social HomeBuy are the same as those set out in Help to Buy: Shared Ownership section 2.3; however additional requirements for Social HomeBuy are detailed in the following paragraphs.

8.7.2 Landlords must not set Social HomeBuy sales prices above the market valuation.

8.7.3 The value of the property must be based on its open market value at the time of the application, and founded on the following assumptions:

  • Any improvements undertaken by the tenant will be disregarded
  • Any failure of the tenant to keep the property in good repair will be disregarded
  • Any service charges or improvement contributions payable will not be less than the estimates contained in the landlord’s offer
  • For freehold property, the landlord is selling a freehold interest with vacant possession
  • For leasehold property, the landlord is selling with vacant possession for the appropriate term, i.e. not less than 125 years (where applicable) or a term expiring 5 days before the term of the landlord’s lease is to expire

8.7.4 The valuation on initial sale should be carried out by an independent, RICS qualified valuer on behalf of the landlord.

8.7.5 Where a tenant disputes the valuation the tenant must make a written representation to the landlord who may use discretion whether or not to refer the property back to the independent valuer for review. Should the tenant then dispute the findings of the review, the landlord can apply for a new valuation from the district valuer, whose decision will be final. The district valuer’s costs will be met by the Department for Communities and Local Government. The role and powers of the district valuer are set out in the Housing Act 1985, however it should be remembered that Social HomeBuy is not a statutory scheme. These arrangements will only apply to the initial sales valuation - valuation arrangements in connection with the purchase of further shares should be contained within the shared owners’ lease.

8.8 Completing the sale

8.8.1 Once the applicant has returned the intention to proceed notice it is advisable for the landlord to issue an offer confirmation letter. This would ensure that both the landlord and the tenant are proceeding on the same basis with regard to the equity share percentage and other issues pertinent to the sale; and that both parties have an understanding of the agreed position.

8.8.2 As the tenant is required to exchange contracts within three months of the date of the property valuation, the landlord should not delay sending the offer confirmation letter.

8.8.3 The offer confirmation letter should include:

  • A formal valuation of the property to be sold, on a market value basis
  • Where applicable, the total rent payable on the property
  • An estimate of the annual service charges/sinking fund contributions
  • Details of any known structural defects
  • The provisions which, in the opinion of the landlord should be contained in the conveyance or shared ownership lease
  • A suitable identification plan showing the boundaries of the property including the land to be sold
  • Details of any discounts received by the tenants in respect of a previous purchase

8.8.4 Landlords may at their discretion decide to undertake a survey to determine the future need for repairs and improvements.

8.8.5 On receipt of the tenant’s mortgage offer or other evidence of the means to purchase, landlords will be in a position to instruct their solicitors and confirm both the discount to be made available and total share the tenant is purchasing (if doing so on shared ownership terms), so that a formal offer of exchange can be made.

8.8.6 Landlords must check the following without undue delay before exchanging contracts:

  • The tenant is not in rent arrears
  • A possession order has not been served during the period the tenant’s application has been processed
  • The tenant is not the subject of an anti-social behavioural suspension order/status, (please see section 4.4 above)
  • The mortgage offer is from a qualifying lending institution (please see the Glossary for a definition)
  • Where a mortgage is not required by the tenant, that evidence of funds to finance the purchase has been provided
  • The landlord’s private lender is prepared to release the property from its security

8.8.7 The tenant has three months from the date of the formal valuation (or longer if the valuation is given for a longer period) to exchange contracts and a further month in which to complete the purchase. Where the tenant fails to exchange contracts on the property within this prescribed period the application may be deemed to be withdrawn (except in circumstances where the delay is as a result of the landlord’s inaction).

8.8.8 Landlords must keep in regular contact with the tenant throughout the process to try to ensure that contracts are exchanged before the valuation expires.

8.8.9 In exceptional circumstances the landlord may use its discretion to extend the valuation period, for example where the delays have been wholly outside the control of the applicant or landlord.

8.8.10 Landlords’ instructions to their solicitor must include the requirement to secure the repayment of discount if sold within five years (and repayment of any subsequent discount within five years) by way of a covenant in the conveyance/transfer.

8.8.11 Subject to landlords being satisfied with the details provided by the tenant and their solicitors, they will then be in a position to complete the sale.

8.9 Qualifying lending institutions

8.9.1 Under current arrangements a mortgage can only be secured as a first charge, that is ahead of any charge the landlord may have, if it is provided by a qualifying lending institution (please see the Glossary for a definition.

8.9.2 Landlords must therefore ensure that any mortgage taken out by the tenant comes from a qualifying lending institution.

8.10 Submission requirements

8.10.1 Following legal completion, landlords must submit the following data using the Agency’s Information Management System (IMS) system when claiming grant. (Please follow the link for IMS guidance):

  • Property details
  • Cost and grant calculations including discount and percentage share to be purchased, if relevant
  • Where applicable rent and Housing Benefit eligible service charge data
  • Date of legal completion of sale

8.10.2 Landlords must be able to confirm acceptance of the on screen certifications that appear at payment stage.

8.10.3 At the point of claiming grant landlords must confirm that the application for grant payment is correct and conforms to the requirements of the CFG.

9. Post sales procedures

9.1 General

9.1.1 The Post Sales issues for Social HomeBuy are similar to or the same as those for Right to Acquire and Shared Ownership. This section provides further details and links to the above chapters as appropriate.

9.2 Staircasing

9.2.1 For shared owners wishing to purchase further shares the issues are as per Help to Buy: Shared Ownership section 7.2. However, the staircasing sales proceeds should be credited to the Registered Provider’s (ex RSL or local authority) Disposal Proceeds Fund and not recycled via its RCGF. For details on the requirements of what sales proceeds should be credited to the Disposal Proceed Fund please refer to the Regulator’s DPF policy.

9.2.2 Further Social HomeBuy discounts are available when staircasing. The available discount must be calculated on a pro rata basis based on the percentage of share being purchased and Right to Acquire discount available for that location.

For a worked example please see below.

Subsequent discounts are based on the Right to Acquire discount applicable in the locality of the property. If the owner of a 40% share in a property originally purchased through Social HomeBuy buys a further 40% share of a property in an area where the full discount is £16,000, the subsequent discount will be £6,400 i.e. 40% of the £16,000. As the purchaser will have already been given a 40% discount for the purchase of the initial share, they will now have had a total discount of £12,800.

The purchase price is funded as follows:

Property Value £180,000
Further 40% share purchased £72,000
Mortgage/deposit/savings £65,600
Discount £6,400 (i.e. 40% of the Right to Acquire discount of £16,000)
Remaining discount available for further shares purchased £3,200 (i.e. £16,000 less original discount of £6,400 and second discount of £6,400)

9.2.3 Where a shared owner may have benefited from flexible tenure and reduced their shareholding, upon any subsequent staircasing the shared owner will still only be entitled to the maximum discount for that location and any previous discount will be taken into account.

For worked examples please see below.

A shared owner is only entitled to the maximum discount despite being offered flexible tenure and subsequently staircasing.

Example 1

Initial share purchase 50%
Discount entitlement 50% of the maximum discount
Landlord repurchases 25% share Shared owner now holds a 25% share
  • There is no requirement to repay any discount
  • Shared owner subsequently re-purchases the 25% share (the discount entitlement is 0% of the maximum discount)
  • Whilst the shared owner is purchasing a 25% share they are not entitled to a further 25% of the discount as they had already received 50% of the discount
  • Shared owner purchases a further 25% share (the discount entitlement is 25% of the maximum discount)
  • The shared owner now holds a 75% share and has received 75% of the maximum discount

Example 2

Initial purchase 50% share
Discount entitlement 50% of the maximum discount
Landlord repurchases 25% share Shared owner now holds a 25% share
  • There is no requirement to repay any discount
  • Shared owner subsequently purchases the remaining 75% share (the discount entitlement is 50% of the maximum discount)
  • Whilst the shared owner is purchasing a 75% share they are not entitled to 75% of the discount. As they have already received 50%, they are only entitled to the maximum less the 50% they have already received

9.3 Repayment of discount

9.3.1 If a Social HomeBuy purchaser sells their property within five years, please see Right to Acquire 5.2.

9.3.2 Registered Providers (ex RSL or local authority) must remember that prior to April 2008 for those purchasing on shared ownership terms a pro rata discount was only available on the initial share purchased. Therefore if further shares were purchased prior to April 2008 the repayment provisions only apply to the initial discount.

9.3.3 From April 2008 discounts became available in respect of further shares purchased after that date. These discounts are also subject to the repayment provisions when the property is sold.

9.3.4 The principles on how to calculate the amount repayable will be the same as those for Right to Acquire 5.2.3, that is a link to the property value. Registered Providers (ex RSL or local authority) will therefore need to consider whether what discounts were available e.g.:

  • Full discount upon 100% purchase
  • Initial discount on shared ownership sales prior to April 2008
  • Initial and any staircasing sales post April 2008

Each discount will be subject to its own five year repayment period.

For an example please see below.

Repayment of Discount

  • Original purchase of 40% 10 June 2006 - 40% discount repayment period 10 June 2006 to 9 June 2011
  • Subsequent purchase of 25% on 10 May 2008 - 25% discount repayment period 10 May 2008 to 9 May 2013
  • Final staircase purchase 10 July 2009 - 35% discount repayment period - 10 July 2009 to 9 July 2014
  • Property sold March 2012. 40% Discount period expired and so no repayment required
  • 25% Discount period live - sale takes effect in year 4 of the repayment period (2008/2013). As the sale take place in year 4, repayment of the 25% discount made available on 10 May 2008 would be 40% of the amount as calculated according to the principles outlined in Right to Acquire 5.2
  • 35% Discount period live - sale take effect in year 3 of the repayment period (2009/2014). As the sale takes place in year 3, repayment of the 35% discount made available on 10 July 2009 would be 60% of the amount as calculated according to the principles outlined in Right to Acquire 5.2

9.3.5 Disregard of improvements value When selling a Social HomeBuy purchased property, any increased value resulting from improvements undertaken by the owner will be disregarded. For detailed requirements see Right to Acquire sections 5.3.5 and 5.3.6.

9.3.6 Please see Right to Acquire 4.12.1 for a model repayment of discount clause.

Registered Providers (ex RSL or local authority) must ensure that a conveyance or lease has an appropriate discount repayment covenant included (see paragraph 6.5). Where the tenant’s mortgage has been provided by a qualifying lending institution this covenant will rank immediately after theirs. Otherwise the Registered Provider (ex RSL or local authority) will have the first charge. Where further lending is needed to fund essential works to the property Registered Provider (ex RSL or local authority) may postpone this charge in favour of the lender. The charge should not be postponed for any other reason.

9.3.7 Exempted disposals Please see Right to Acquire section 5.3 for details of circumstances in which Registered Providers (ex RSL or local authority) may consider waiving discount repayment.

9.4 Mortgage difficulties flexible tenure and leasehold repurchase

9.4.1 Lenders may take action to repossess property if mortgage payments are not maintained (‘being in default’). Registered Providers (ex RSL or local authority) must refer to the Agency’s requirements as set out in Help to Buy: Shared Ownership 7.4.

9.4.2 Where a Social HomeBuy shared owner reduces, but still retains part of, their equity in the property no repayment of the discount is required. However, should the shared owner revert to being a tenant within the designated repayment period, the discount is repayable.

9.4.3 The requirements and opportunities for offering Flexible Tenure and Leasehold Repurchase to leaseholders who are struggling financially are set out in Grant Recovery 6.5 and Help to Buy: Shared Ownership 7.4.2 respectively.

10. Reporting and audit requirements

10.1 General

10.1.1 Registered Providers (ex RSL or local authority) must maintain accurate and complete records of Social HomeBuy transactions, both for reporting and audit purposes. This section sets out the requirements.

10.1.2 The Registered Provider (ex RSL or local authority) must retain on file the following for Compliance Audit purposes see also Programme Management section 8:

  • Solicitors’ letter confirming that the purchase has been completed and setting out the sum paid and date of completion
  • A property schedule showing addresses, floor areas, and valuations for the completed properties, together with actual rents and housing benefit eligible service charges

10.2 Monitoring

10.2.1 Following completion of the purchase, Registered Providers (ex RSL or local authority) must input Social HomeBuy sales data into IMS, in order to draw down grant. This must be repeated for staircasing sales.

10.2.2 Grant will not be payable where Social HomeBuy records are incomplete or incorrect.

10.3 Certifications

10.3.1 The information provided by Registered Providers (ex RSL or local authority) within IMS and on their annual Disposal Proceeds Fund return is the means by which Social HomeBuy outputs will be monitored. Therefore the Agency requires Registered Providers (ex RSL or local authority) to certify compliance with the Social HomeBuy procedural requirements and ensure a print off of their annual Disposal Proceeds Fund return is shown to their external qualified auditor as signed by the Registered Provider’s authorised signatory.

10.4 CORE

10.4.1 Registered Providers (ex RSL or local authority) are required to complete COntinuous REcording system (CORE) sales logs in respect of all homes sold through Social HomeBuy. CORE is the remit of DCLG. Any queries about CORE or the appropriate forms should be referred to them.