INNOVATION IN FINANCE

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1 April 2011 INNOVATION IN FINANCE NEW FORMS OF FINANCE TO RELEASE THE VALUE OF EXCLUDED OLDER PEOPLE S HOUSING ASSETS TO ENABLE THEM TO PLAY A ROLE IN A FAIRER SOCIETY Fit for Living: Innovative funding options for older home-owners to repair and adapt their homes

2 HACT s Fit for Living Network looked at new ways of improving the health and well-being of the most vulnerable and marginalised older home-owners who are living on low incomes in the poorest quality and most unsuitable housing conditions. Information about the work of the Network and its publications are online at HACT works with the housing sector, government, civil society and communities to develop and share innovative approaches to meeting changing housing need. HACT believes housing provides a foundation for changing people s lives for the better. We seek to influence housing practice and policy to transform lives and strengthen the resilience of communities. We are a small organisation that delivers with and through others. Partnerships remain central to our work. Our contribution comes from bringing people together and sharing ideas, ideals and inspiration to jointly achieve change. Acknowledgements Friends Provident Foundation and HACT provided funding for the Network. Orbit and Housing LIN provided sponsorship for this publication. Author: Tamsin Stirling HACT 50 Banner Street London EC1Y 8ST Tel: Fax: info@hact.org.uk Web: Registered charity number: Company number: HACT

3 Bryan and Sheila in front of their renovated house (photo: Wessex Home Improvement Loans) High levels of low income owner occupation combined with increased longevity is a new social phenomenon, one which requires national policy recognition. It is highly relevant to The Coalition: our programme for government's aim: We will help elderly people live at home for longer through solutions such as home adaptations and community support programmes. can experience ill health, stress, hazards in their homes and accidents, increasing the demand on other services, in particular health and social care. Enabling older people to live at home for as long as they choose requires finance for adaptations, repairs and improvements. However, the options currently available to these individuals to meet the costs of repairing and adapting their homes are limited: the private sector housing budget through which local authorities have provided loans and grants for home improvements and repairs has recently been cut by 100% 2 many traditional finance products are not accessible to those on low incomes. Following the banking and economic crisis, access to finance has become more constrained and some low income older home-owners will be unbanked, with no access to mainstream credit products such as equity release may not have the full confidence and trust of low income older homeowners 3 The number of low income home-owners living in poor housing is increasing and this is a new phenomenon. The only potential asset that these individuals have to pay for necessary repairs, improvements and adaptations is their home. Lending to people on low incomes living in lower equity homes is unlikely to be taken up to the extent needed by private institutions. In addition, there are significant issues of lack of confidence and trust in products such as equity release. New approaches to fair and afforable finance are therefore required in order to enable these homeowners to access the money needed to improve and adapt their homes so that they can live independently for as long as they choose to do so, and remain eligible for appropriate benefits and entitlements. Why is this an issue that needs attention? The number of low income older home-owners living in poor quality, unsuitable and energy inefficient 1 homes is increasing and home-ownership continues to be encouraged. Many low income, older home-owners struggle to meet the cost of repairing and adapting their home. As a result, they low income older home-owners are likely to have a range of other needs that have to be addressed for people to buy into schemes and make use of finance. These include the provision of independent information and advice and practical support to get repair and improvement works carried out; simply providing financial products is not sufficient. 1 The number of people defined as being in fuel poverty is 5 million and rising 2 For the first time since 1949 national government has allocated no funding for private sector housing (Care and Repair England, 2010, A Perfect Storm www. careandrepair-england.org.uk/aperfectstorm.htm) 3 Joseph Rowntree Foundation, 2006 Obstacles to equity release New forms of finance 3

4 Innovation in financial services has never been more important. The support of trusted intermediaries enabling investment by corporate bodies, banks and wealthy individuals into civil society organisations is needed to unlock the value of homes to make them fit to live in. Such organisations will have a crucial role in raising awareness of appropriate financial products and increasing trust and confidence amongst older low income homeowners in relation to such products. These organisations could include local authorities 4, housing associations, voluntary sector organisations, Home Improvement Agencies 5 and Community Development Finance Institutions, all of whom have knowledge of, and working links to, local communities. Such approaches will also continue to support and protect the most vulnerable, low income, older home-owners who have a single asset their home. Despite this context and the amount of new policy development in a number of areas, there is no policy framework at a national level for this crucial issue. It is also difficult to see a coherent national picture emerging in relation to relevant policies on finance, housing, health, social care and tackling fuel poverty. In addition, there is no clear or consistent policy framework for local authorities to assist older home-owners living in properties that fail minimum housing standards. What is needed? A creative and innovative approach to develop new ways of providing finance to older low income home-owners and build on the success of existing initiatives New partnerships between private, public and new, civil society and financial intermediaries Replicable models for appropriate, flexible financial packages that are person centred, and meet the needs of older and vulnerable homeowners Government policy and action to enable and support the above 3 points A better understanding of older people s attitude to credit and evidence of what they want which informs the development of new products and improvements to existing products 6 Support for local authorities to combine grants for support for this group into fair and affordable finance, e.g. through place based budgeting, through raising local bonds, or investing from their pension funds working with established local finance intermediaries The use of integrated public funding to provide the subsidy or gap, with which to gear up and attract long-term fair and affordable finance, from sources such as the Big Society bank, and mainstream providers of finance/equity The development or support of zero or lowinterest loans, support in accessing DWP mortgage interest payments, and equity release type products which protect the rights of homeowners Recognition that it is important to differentiate between the need for small loans and finance for major repairs; each will require different solutions. The smaller the loan requirement, the less complex the process should be The development of integrated, but locally sourced, information, advice and support services to enable older and vulnerable low income home-owners to make informed choices and access appropriate fair and affordable finance The engagement of housing providers, e.g. through making services and/or home improvement products available to homeowners and/or working in partnership with Community Development Finance Institutions and Credit Unions to enable the provision of appropriate financial products. 4 Work is currently being supported by the Joseph Rowntree Foundation to pilot a new equity release product, the Home Cash Plan, which involves local authorities and local voluntary bodies ensuring that older people get the information, advice and support they need ( 5 Foundations, 2008 Lending some comfort: funding for repairs and adaptations examines the role of home improvement agencies in assisting their clients to fund repairs, adaptations and improvements to their homes using a variety of possible routes 6 As part of its work, HACT s Fit for Living Network is undertaking small scale research on whether older home-owners contacting home improvement agencies have considered using equity in their home to fund repairs and improvements and whether they have actually done so 4 HACT

5 What have we got at the moment? Limited or no mainstream financial products suited to these home-owners A lack of information about, and understanding of, the various means by which home-owners can release equity from their homes and issues of lack of trust and confidence in some products Patchy provision of alternative fair and affordable finance and limited equity release products Reduced willingness and ability for local authorities and housing providers to engage in financial sector activity or provide leverage Some innovation via Community Development Finance Institutions and other bodies (e.g. London Rebuilding Society Home Improvement Scheme, Wessex Home Improvement Loans 8 ) Lack of consistency in the availability of accurate, impartial, appropriate and accessible information, advice and support for older and vulnerable home-owners, and limited solutions. What can be done to improve the housing conditions and well being of older home-owners living on low income? Government policy to promote local solutions, encouraging local authorities to take a place based budgeting approach to the provision of finance for older and vulnerable people, and encourage partnerships between public bodies, social landlords, Community Development Finance Institutions, Credit Unions and other social lenders Government encouragement: for financial innovation in the delivery of home repair and improvement for vulnerable and older low income home-owners, building on existing best practice to the banks to deliver on Corporate Social Responsibility commitments for investment in this area of work from banks, benevolent funds and philanthropists Mrs Vile, Wessex Reinvestment Trust Home Improvement Loans. Andrew Kingham. to Local Economic Partnerships to take a role in ensuring that home improvement loan funds are co-ordinated 9 Government investment in growth of existing social equity release/loan schemes with a track record through application of Big Society funds which would lever in private sector resources. Organisations providing such products are currently facing barriers to accessing the necessary capital to expand their work which includes providing various forms of loan products to low income older home-owners Expansion/extension of tax incentive mechanisms such as the Community Investment Tax Relief scheme 10 to cover this area of activity to stimulate private investment Housing providers working in partnership with Community Development Finance Institutions to enable the provision of appropriate financial products. Such partnerships might involve housing providers lending capital resources to Community Development Finance Institutions The development of choices such as variations of reversed shared ownership for the most disadvantaged, older home-owners which allows them to sell part of their home to a housing organisation in exchange for improvements and repairs Government stimulus of the market for social investment tools, such as social impact bonds, local social investment bonds, and long-term finance using the Big Society Bank 8 and 9 The Foundations 2008 report Lending Some Comfort noted the rationale for regional models for home improvement loan funds linked to local delivery of information, advice and support to vulnerable older home-owners 10 New forms of finance 3

6 Reform of the banking sector to: make it more competitive and encourage partnerships to create new financial products and services encourage new financial intermediaries, competition and greater fairness and inclusivity in financial services (through a UK Community Reinvestment Act) Legislative, technical and capacity support from Government and the mainstream lenders to enable charitable grant makers and benevolent funds to deliver housing equity related loans, as an alternative to non repayable grants, within a compliance and consumer friendly framework Promotion of best practice and examples of scale-able initiatives which involve financial innovation in the delivery of home repairs and adaptations for vulnerable and older low income home-owners 11 Target energy efficiency measures at the poorest, most vulnerable, older home-owners. Innovative funding options: demonstrating outcomes for individuals Client B was referred for assistance by the housing department of the local authority. The caseworker visited and established that there was no heating or electricity. Client B wanted a kitchen/bathroom refurbishment and some guttering works. It was also established that he had Parkinson s disease and an alcohol problem and was not getting any disability benefit. Client B was referred to Warm Front for central heating and ART Homes Ltd 12 for a Property Appreciation Loan 13 of 11,000 for the other works. An application was made to Foundations Independent Living Trust for funding to get the electrical wiring sorted out and a grant of 2,256 was approved. Once the Property Appreciation Loan for 11,000 was approved, Client B had the works carried out and because there was some money left over from the loan, he decided to have a new front door to improve the security of his home. [Source: Black County Care and Repair Mr and Mrs W (aged 55 and 46) and their children had had a very difficult time as a result of cowboy builders making several areas of their home unusable. Mrs W has restricted mobility and is registered disabled. Her condition is made worse by cold and draughts which affect her mobility. Mr W had become unemployed and so the couple had a low credit rating due to low income. The family was dependent on benefits and approached DABD 14 for a benefits check and advice and were referred to the London Rebuilding Society for a property appreciation loan. Mr W s case could progress quickly as he had already undergone a benefits check and Financial Capability Coaching, understood his options and wanted to participate in the scheme. While the works were in progress, Mr W heard about the solar photo voltaic trial (SHIMMER) 15 being undertaken by the London Rebuilding Society and agreed to participate; this should result in noticeable savings to the family s fuel costs. The cost of the works needed to be carried out to the property were equivalent to around 25% of the total equity. After the work was carried out, the family were able to enjoy a good quality of life. The house is now warm, dry, safe, secure and accessible. Mrs W s symptoms have improved, Mr W no longer feels out of control and is hoping to be able to get back into work now that his home is safe and Mrs W feels able to cope. [Source: London Rebuilding Society 11 As part of its work, the Fit for Living Network has commissioned research on the work of local authorities and CDFIs in respect of providing financial assistance to low income older home-owners. This research includes a range of case studies and will be published by HACT in The loan is secured against the value of the property but with no repayment of capital or interest until ultimate change of ownership. The loan is calculated as a percentage of the initial value of the property. The repayment amount is based on the same percentage, but of the property value when the loan is redeemed pilot-in-east-london/dbc7893e bfb-ad63-5f60c536c363 6 HACT