Final Draft Criteria for Low Cost Home Ownership May 15

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2 Document title Criteria - Assessing eligibility for low cost home ownership (LCHO) properties Document author Housing Development Manager/Housing Needs Officer Who is accountable for this criteria/strategy? Housing Development Manager Current version no. V0.1 Effective from date May 2015 Approval body Approval date Review frequency 12 monthly Next review due May 2016 Is the document confidential? No Revision History Date Version Summary of Changes Keep VERY brief Section(s) Changed Equalities Impact Assessment This must be done each time a criteria/strategy is fundamentally revised Assessment date April 2015 Assessment location Allerdale House

3 Index of Contents 1.0 Introduction - Background to Scheme 2.0 Purpose of the Criteria 3.0 Scope of the Criteria 4.0 Criteria Statement 4.1 Section 106 Planning Obligations 4.2 Sales 4.3 Renting 4.4 Appeals 5.0 Enforcement 6.0 Monitoring and Review Appendix 1: Methodology to calculate values for Discounted Sale Properties

4 1. INTRODUCTION 1.1 Background This criteria has been developed to help those households who have been priced out of the housing market by the rise in house prices coupled with the stagnation of household incomes. In 2014 figures provided by Cumbria County Council showed that in Allerdale, median (middle value) house prices were 5.3 times higher than median household income. Lower quartile (lowest quarter value) house prices were 6.4 times higher than lower quartile household income. In 2013 the figures were 5.0 and 6.1 respectively, showing that properties throughout the borough are becoming further out of reach for local households every year. Low Cost Home Ownership (LCHO) is an umbrella term used to describe housing which bridges the gap between social rent and open market properties, including discounted sale, shared ownership, and intermediate affordable units. This criteria has a direct link to Allerdale s Local Plan (policy S8), which can be accessed through the following link : Adopted_Allerdale_Local_Plan_(Part_1). Discounted sale units are sold for a percentage of their open market value. Percentages are calculated using local house price and local income information provided annually by Cumbria Observatory (Cumbria County Council) as per the methodology set out in Appendix 1. Details of open market discounts can be found at the following link : Open Market Discounts by Parish. The process for assessment continues to be applied for all discounted sale and shared ownership properties in Allerdale where we are the certifying body. 2.0 PURPOSE 3.0 SCOPE 2.1 The purpose of this document is to set out the criteria and process for assessing eligibility of applications for Low Cost Home Ownership properties (LCHO). 3.1 The criteria will provide the Council with a framework in which to assess applications for low cost home ownership within Allerdale, excluding those areas covered by the Lake District National Park planning authority. 3.2 This criteria will set out the rights of succession in the event that the owner wishes to leave the property to a beneficiary.

5 3.3 The Low Cost Home Ownership term encompasses all discounted sale and shared ownership properties where Allerdale Borough Council is the certifying body. This criteria will apply to first sale and all subsequent re-sales. 4.0 CRITERIA 4.1 Section 106 planning obligations A section 106 planning obligation is a legal document used, among other things, to set out the procedures which must be followed during the sale of a discounted sale property. If anyone buys a discounted sale property in breach of the 106 planning obligation the Council can enforce the terms of the agreement which might be by way of an injunction. This document explains how Allerdale Borough Council will apply the clauses in the 106 planning obligation to applications to purchase a discounted sale property. 4.2 Eligibility Criteria The Council has to ensure that anyone who occupies a Low Cost Home is eligible to live in it and this eligibility reflects the condition of the section 106 agreement. This document describes how we implement the definitions of a qualifying person, found in the Section 106 agreement and ensures that the low cost home ownership properties are fully occupied. A household must prove that it can meet each of the four conditions specified below before receiving certification to purchase a discounted sale property Assessing for Ability to Purchase If a household has sufficient funds available that would allow it to purchase one of five suitable properties in the parish on the open market then that household would not be certified to purchase a discounted sale property. The following formula will be used to calculate if a household has access to funds that will enable them to buy an appropriate property in the parish on the open market: Mortgage in principle + savings + equity. The mortgage in principle offer should be on headed paper from a reputable lender. It has been decided to use mortgage in principle as this gives a better indication of the true borrowing power of the applicant than applying the 2.9 x income for a joint application and 3.5 x income for a single applicant. These standard multipliers pre-date the recent banking crisis and are no longer applicable. Savings will be evidenced by production of statements for all accounts held by those who will be named on the mortgage. Current account statements must show all transactions for a calendar month. For those with a property to sell, equity will be calculated by taking away any outstanding mortgage from the current value of the property. This will be evidenced by an outstanding mortgage statement and a property valuation from an estate agent.

6 A suitable property is one that is currently available that is considered to be a property of adequate size for the household and in good condition. To identify available properties we will look at the housing market. We will allow one bedroom per couple and one for each child. Properties should have an energy efficiency rating of at least 49, which is the average for private housing in Allerdale Assessing Household Size Only households who will fully occupy the discounted sale property will be considered. As a house is a substantial capital investment, one extra bedroom will be allowed. This will take account of a variety of circumstances such as growing families or changing care needs. Single person / couple Family +1 child Family +2 same sex children Family +2 opp. sex children Family +3 children Family +4 children Family +5+ children one or two bed home two or three bed home two or three bed home three or four bed home three or four bed home four or five bed home five or six bed home In the event that a suitably sized household cannot be found, the developer will seek permission from the Council to sell the property to any certified household. However, the property must have been marketed for at least 16 weeks before this can happen Local Connection Criteria A local connection to a parish can take four forms 1 : - Resident in the locality for at least five years - Previously resident in the locality for at least three of the last five years - Family association with an existing resident of at least five years residence in the locality. Family association is defined as spouse, civil partner, parent, children and siblings. We will also allow family associations through marriage e.g. step parents, children and siblings. - Permanent employment in the locality or acceptance of the offer of employment 1 In the event that the appropriate Section 106 Planning Obligation contains different criteria, the criteria in the Planning Obligation will be applied.

7 4.3 Sales Residency, previous residency and family association will be evidenced by a Council Tax bill, utility bills or driving licence. Council Tax records will be checked to prove length of residency. This is not an exhaustive list, and other evidence may be considered. Employment will be proven by production of a wage slip or P60 showing the employers address. We will also accept a letter from the employer confirming the business address Housing Need Households purchasing a discounted sale property should be able to demonstrate they are in need of housing. The 106 planning obligation defines housing need as a situation where, in the opinion of the Council, a person or household (as defined in section 113 of the Housing Act 1985) 2 : New Developments (a) Needs to move from accommodation that has a Category 1 hazard as rated under the Housing Act 2004 Housing Health and Safety Rating system (HHSRS), shared, temporary, overcrowded, or (b) Needs to be re-housed as a result of leaving tied accommodation, or (c) Is or includes an elderly or disabled person who needs to move due to medical conditions, or (d) Needs to move due to reasonable preference as determined by the Council s housing allocation policy; and (e) Does not have available to them and cannot afford to buy or rent suitable accommodation at Open Market Value or market rent prevailing within the Locality (f) Household does not live in the Locality but has demonstrated a connection to the locality through employment or family association and meets the requirements of affordability When releasing a property for discounted sale developers will advise the Council and submit a valuation of the property Re-Sales When selling a discounted sale property the vendor will be required in the first instance to inform the Council of their intention to sell, and confirm the date that the property will be on the market. The vendor will also submit a valuation of the property to the Council, which will be used as a basis for its discounted sale value. 2 In the event that the appropriate Section 106 Planning Obligation contains a different definition of housing need, the definition in the Planning Obligation will be applied.

8 For all sales it is the responsibility of the vendor to market the property and to ensure that a buyer has been certified to purchase the property Right to Succession Those who inherit a discounted sale property will be required to inform the council, and must demonstrate that they meet the eligibility criteria specified within this criteria. Households who do not meet the criteria will not be certified and will be required to sell the property for the current discounted value in place for that parish. 4.4 Renting There may be occasion when the owner of a discounted sale property may wish to temporarily rent out the property, e.g. where they are working away from home. Where the owner is considering sub-letting the property, this must be approved in writing by the Council, and will only be allowed for a specific time. The new tenant will be required meet the eligibility criteria as set out in the section 106 planning obligation, and rents will not exceed the prevailing Local Housing Allowance for the parish. Purchasing a discounted sale property solely for the purpose as a rent to buy property will not be allowed. 4.5 How To Apply Application forms are available from various sources e.g. developers, estate agents and housing services. Households submit their forms to the Council s Housing department, with accompanying evidence. All paperwork and s are saved in a folder specific to that application. Forms and evidence will be assessed by the Housing Needs Officer using the Low Cost Home Ownership criteria. Eligible households will be notified by letter and all evidence returned to the applicant. Ineligible households will be notified by letter. The letter will give details of why the applicant has been refused, how to appeal and a deadline by which they should appeal, which is 14 working days from the date of the refusal letter. Evidence will be retained until the appeal is completed. In the event of an appeal, a letter will be sent to the applicant upon receipt of the appeal, giving a date by which the final decision will be made. This will be within 14 working days after receipt of the appeal. 4.6 Appeals Those wishing to appeal against a decision not to certify must do so in writing to the Housing Development Manager at Allerdale Borough Council, within 14 working days. The appeal will

9 be fully answered within 14 working days. This response is final and no further correspondence will be entered in to, and there will be no further right of appeal 5.0 ENFORCEMENT The Council will be notified of any sales of a discounted sale property. Where the Council have not been notified and become aware of a sale at a later date the Council will initiate an investigation to determine the eligibility of the purchaser. If the purchaser is found to be ineligible, the Council will take the necessary steps to secure the Council s interests. This may result in the Council taking appropriate action for failure to comply with the section 106 planning obligation. 6.0 MONITORING AND REVIEW 6.1 It is expected that monitoring will be on-going to determine that the criteria is working for both the developers and local communities and to ensure that the type of housing provided for discounted sale reflects the needs of the local people/families.

10 Appendix 1: Methodology to calculate values for Discounted Sale Properties It was decided to use median values at ward level as the basis for open market value discounts, this is because lower quartile incomes are by their nature low, and would lead to discounts which would make developments economically unviable. In 2007 Government recommendations on responsible borrowing stated that single earner households may borrow 3.5 times their income, whilst dual earner households may borrow 2.9 times their income. For the purposes of this calculation borrowing capability has been calculated using the average of 3.5 times median income level and 2.9 times median income. It has also been assumed that a household will have enough savings for a 10% deposit on a house priced at median value. At the time the calculation was formulated, 10% was the minimum recommended deposit for first time buyers used by large building societies. Borrowing capability + deposit is then calculated as a percentage of the median house price to give the value of the discount required. For example, if the median house price is 201,400 and borrowing plus deposit would give a household access to 134,601, then money available is 66.8% of the median house price. Therefore, selling discounted sale properties with a 33.2% discount would make the property affordable to those households earning the median income. In wards where the % discount is greater than 20% the discount is rounded down to the nearest 5%, in other wards the discount will be rounded up to the nearest 5%. In the example above a discount of 30% of the open market value would be required and the section 106 planning obligation would require the property to be sold at 70% of open market value. Details of open market discounts can be found at the following link : Open Market Discounts by Parish Details of existing discounted sale properties can be found at the following link : Discounted_Sale_Properties

11 GLOSSARY Certified Discounted Sale property Low Cost Home Ownership Mortgage in Principle Section 106 planning obligation Shared Ownership property a household who has been found to meet the necessary criteria to be found eligible to purchase a discounted sale or shared ownership property a property which is available to purchase by a certified household for a percentage of its open market value an umbrella term used to describe housing which bridges the gap between social rent and open market properties, including discounted sale, shared ownership, and intermediate affordable units. a mortgage in principle is a conditional offer made by a mortgage lender that provided the information you give them is correct they will in principle give you the loan you have discussed with them. a legally binding document used to secure contributions to the local community to minimise the impact of a development. Typical contributions are affordable housing or a payment to the community for a specific amenity, e.g. an extension to the local school A property which is available to a certified household on a part-buy, part-rent basis.