SCARBOROUGH BOROUGH COUNCIL CABINET 26 JULY 2005 AGENDA ITEM NO REPORT OF THE HEAD OF ENVIRONMENTAL HEALTH SERVICES HEHS/05/43 on THE NORTH YORKSHIRE 'WISH' PURPOSE OF REPORT This report outlines the progress of the development of a regional home appreciation loan scheme following a successful bid for funding. It seeks Cabinet endorsement of the participation of Scarborough Borough Council in the scheme and recommends approval of amendments to the Council s Housing Renewal Strategy together with delegation of certain functions to Sheffield City Council. 1. INTRODUCTION 1.1 Cabinet at its meeting on 30 September 2004 considered a report (ref HEHS/04/62) outlining the development a property appreciation loan by the North Yorkshire Council s and the City of York. The scheme, then entitled the North Yorkshire WISH, was subject to a bid for funding from the ODPM Private Sector Commissioning Fund 2004/5 to the Regional Housing Board (RHB). Cabinet agreed to support the scheme in principle and requested a further report in due course. 1.2 The bid for funding was successful but changes to the scheme, in particular to its administration, were found to be necessary. This report outlines these changes and requests continued support for the scheme and approval for necessary amendments to the Council s approved Housing Renewal Strategy to enable its use by this authority. 2. CORPORATE OBJECTIVES 2.1 The key corporate objectives affected by this report are: the provision of decent homes for all keeping the Borough healthy improving, protecting and sustaining the environment
3. ISSUES 3.1 As part of the development of the Council s Housing Renewal Strategy, the use of loans as opposed to grant assistance was considered. At that time no suitable loan scheme was available, however the strategy includes a commitment to keep this aspect under review. The Borough Council is a member of the North Yorkshire Private Housing Group representing all the Councils in North Yorkshire. The Group had been reviewing the issue of Equity Release and other loan schemes. The outcome of that review was the North Yorkshire WISH a Property Appreciation Loan Scheme aimed at using the equity in a property to help the vulnerable and elderly stay Warm, Independent, Safe and Healthy. 3.2 A bid for funding was made to the Regional Housing Board for 500,000 from the ODPM Private Sector Commissioning Fund 2004/2005. This bid was successful, however it was in the form of supported borrowing. This created a number of problems to all the local authorities in North Yorkshire associated with debt charges and Revenue Support Grant. For a local authority to act as banker it would have been necessary for it to be able to derive Revenue Support Grant.. None of the local authorities in North Yorkshire were in a position to be able to take on the role as banker. Following discussions with the Government Office for Yorkshire and the Humber it was suggested that Sheffield City Council could act as banker for the North Yorkshire scheme. Apart from providing a means of delivering a scheme in North Yorkshire the Government Office felt that there was much to be gained from a regional approach, as it is something that the Regional Housing Board would want to pursue in its next investment strategy. 3.3 Sheffield City Council agreed to act as banker and will receive Revenue Support Grant. In addition Sheffield has been the lead authority in the development of a property appreciation loan package on behalf of nine local authorities in South and West Yorkshire. In November 2004 a consultative document was published by the ODPM for local authorities providing mortgages and related advice. Its aim essentially was to assist local authorities to comply with the principles of the Financial Services Act (FSA). Sheffield s own knowledge and understanding of what was required had grown to the point that it was considered able to adhere to the principles of the FSA without procuring external expertise. 3.4 In the original proposals match funding from the Yorkshire Housing Group to further support the loan pool and to fund a project worker to help establish and develop the scheme was expected. Yorkshire Housing subsequently withdrew this offer and is understood to be developing its own equity release scheme. 3.5 With South, West and North Yorkshire credit approval for loans given to Sheffield as the accountable body on behalf of the other authorities this has effectively forced a unified approach to the scheme which is being badged as the Yorkshire and Humber Regional Home Loans Service. It is anticipated that the Humber authorities will join the scheme at a later date.
4. ASSESSMENT 4.1 An outline of the Yorkshire and Humber Regional Loans Scheme is appended to this report. There are a number of minor differences with the regional scheme as opposed to the North Yorkshire WISH as outlined in the previous report to Cabinet. These are:- Eligibility criteria under the original proposals loan were to be restricted to those home owners over 55 years of age or receiving a mandatory Disabled Facilities Grant (DFG). The age related restriction has now been removed. To ensure that loans are targeted effectively, the Home Appreciation Loan will be available to those who fit the vulnerability criteria (Government s Public Service Agreement 7), or receiving a mandatory Disabled Facilities Grant, and will be targeted at those on lower incomes who do not have sufficient savings to finance the required essential works. Loans the loan parameters have been changed. The minimum loan that can be given has been reduced from 4000 to 2000 and the maximum reduced from 40000 to 30000. Equity the amount of loan as a proportion of the equity in the property has been amended. In the original proposal loans up to 80% of the available equity were proposed. This has been reduced in the new scheme to ensure that the maximum value of any loan cannot exceed 50% of the property value and the total of all secured borrowing must not exceed 70% of the property value. FSA requirements under the original scheme, in order to comply with FSA requirements, the administration of the fund and advice to applicants was to be undertaken by a third party, Aston Reinvestment Trust (ART) Homes. As a result of amended ODPM advice to local authorities Sheffield now feels it can undertake this role and ART Homes is no longer to be used. This will generate substantial savings in administrative costs. Name the name of the loan has changed to Home Appreciation Loan (HAL) from Property Appreciation Loan. 4.2 In May 2004 Cabinet approved a Housing Renewal Strategy following a review by the Housing Land and Property Overview and Scrutiny Committee. To enable the Council to offer HALs an amendment to the Strategy will be required. At this stage no other amendments to the types of assistance the Council offers is proposed however this is currently being reviewed in light of changes to be introduced by the Housing Act 2004. 4.3 In order for the scheme to be delivered by Sheffield as the fund holding accountable body, each local authority must delegate to Sheffield powers to grant loans within that authority s administrative area. Until such a delegation has been given the Borough Council may not make use of the service. Letters of agreement have recently been issued by Sheffield for each local authority to consider.
4.4 It is difficult to estimate the take up of loans once the scheme is in place. In order however to plan resources, in the shortened current financial year it is anticipated no more than 3 loans per authority will be processed with a projection of 6 loans per annum in the next two years. Further bids for a further 400K per year to the Regional Housing Board to cover this level of activity in 2006/7 and 2007/8 have been made. 5. IMPLICATIONS a) Policy 5.1 The use of loans to assist home owners repair or renovate their homes is encouraged by the Government. The provision of loans through the regional scheme to residents of the Borough will require an amendment to the Council s Housing Renewal Strategy. b) Financial 5.2 The running and administrative costs specifically associated with the scheme will initially be secured through the original Regional Housing Board funding. Further bids to the RHB have been made to support the scheme until 2007/08, and further development and support is already being pursued. Apart from some promotional work locally, there will be no direct cost to the Borough Council. Additional income from fees would support the work of the Council's Home Improvement Agency. c) Risk 5.3 See attached risk analysis matrix. d) Legal 5.4 The introduction of loans in addition to other financial assistance offered by the Council is permitted by the Regulatory Reform Order of 2002. In accordance with the provisions of the Local Government Act 2000 and Local Authorities (Arrangement for the Discharge of Functions) (England) Regulations 2000, to enable Sheffield City Council to issue Loans on behalf of the Borough Council, it will be necessary for the Borough Council to formally delegate to Sheffield the function of the payment of loans on behalf of the Borough Council under its Housing Renewal Strategy. Documentation relating to this has recently been received from Sheffield City Council and is currently being considered by the Council's Legal Service. Cabinet is asked to approve in principle the delegation of this function subject to that documentation being found to be acceptable and satisfactory. e) Environmental and Sustainable Development 5.5 The scheme, if successful, would have a positive impact in relation to the environment. Any works undertaken to properties are likely to improve not only the visual appearance of the property but the thermal efficiency also.
OFFICER RECOMMENDATION i) It is recommended that this report be received and that: ii) iii) iv) support is given in principle to the Borough Council s participation in the Yorkshire and Humber Regional Homes Loans Service; the Housing Renewal Strategy be amended to include the provision of Home Appreciation Loans; and approval is given in principle to the delegation to Sheffield City Council of the Borough Council s functions relating to the provision of loan assistance subject to the necessary documentation being satisfactory. Head of Environmental Health Services Background Papers: None
RISK ANALYSIS Issue Excessive demand in early years depleting the loan pool Quantum Risk Implication Mitigation Unlikely Medium Inability to offer loans to vulnerable Mechanisms to acquire applicants. Public dissatisfaction. additional funding are already Insufficient demand Likely Low Scarborough Borough would not receive its share of the regional funding Falling property prices Unlikely Low Depletion of loan pool as loan repayments are lower than anticipated. Inability to offer loans to vulnerable applicants. Public dissatisfaction. being investigated. Initial take up expected to be low. Current council policy to offer grants may make loans a less attractive option. Need to review Housing Renewal Strategy once scheme operational. Efficient administration of loan scheme
APPENDIX Yorkshire and Humber Regional Homes Loans Service Home Appreciation Loans Background 1. The Office of the Deputy Prime Minister s Circular 05/2003 entitled Housing Renewal explains the purpose and content of the Regulatory Reform Order (RRO) on Housing Renewal. The circular encourages partnership working and recognises that local authorities can benefit from working together, especially in the development of new policy tools. 2. The circular suggests that, given the pressure on local authority resources, the new ability to offer financial assistance other than grants should be carefully considered as an option. It also recognises that equity release schemes may be the best method of assisting low income homeowners if there is substantial equity value in their homes, even though they are in need of repair. 3. More importantly the new powers under the RRO enable authorities to support the development of new products, which can incorporate safeguards and be made more attractive to a wider group of homeowners who need help with repairs. 4. The Council in its approved Housing Renewal Strategy is committed to continue to consider loans, particularly those using the equity in a property, as an alternative to grants. 5. The North Yorkshire WISH was a result of this commitment and involves taking a share in any appreciation in value of the property between the period when the loan was made and when the property is subsequently sold. It is envisaged that the new home appreciation loan scheme will be used for larger loans, as the current Strategy provides for a Minor Works Grant to a maximum of 6000 over a rolling 3 year period. 6. The North Yorkshire Private Housing Group had been seeking to develop an Equity Release Loan for the last 2 years. The result of this work was the North Yorkshire WISH a Home Appreciation Loan Scheme aimed at helping the vulnerable and elderly stay Warm, Independent, Safe and Healthy. Last year a successful bid was made to the Regional Housing Board for 500,000 of the 1.4 million available through the ODPM Private Sector Commissioning Fund 2004/05. This money is to be used to fund the proposed loan pool, which along with the majority of administration functions will now be managed on behalf of North Yorkshire by Sheffield City Council. 7. The potential to use equity release to meet the challenge of decent homes in North Yorkshire is clear. Property prices are high, yet many residents, especially the high proportion of older residents, are income poor.
8. Although the North Yorkshire WISH now forms part of a larger Regional loans scheme, the principles remain unchanged and the new scheme will continue to contribute to a number of private housing agendas - decent homes, affordable warmth, sustainable communities and health - whilst also encouraging homeowners to take responsibility for their own homes and therefore reduce grant dependency. 9. It is a self-financing, but not-for-profit scheme. It takes the form of a Home Appreciation Loan, where the appreciated value of repaid loans is used to cover initial loan set-up costs and the general administration of the scheme. 10. Scarborough Borough Council would be responsible for promoting the scheme throughout the district - giving general advice and acting as an initial contact point for the scheme. The cost of promotional literature would be set against the Regional Housing Board monies and will not need to be directly funded by individual local authorities. Explanatory leaflets have already been drafted which will have the Scarborough logo on them. 11. Surveys/specifications and arranging for contractors estimates etc for necessary works would be administered by the Council through the Home Improvement Agency. The North Yorkshire authorities are already involved in promoting private sector renewal across the county, so the local mechanisms for delivery of this scheme are already established and proven. How the scheme will operate 12. The Home Appreciation Loan will be available to those who fit the vulnerability criteria (Government s Public Service Agreement 7), or receiving a mandatory Disabled Facilities Grant, and will be targeted at those on lower incomes who do not have sufficient savings to finance the required essential works. The application will be free to the applicant these costs being met from within the scheme parameters, provided the applicant does not withdraw after material costs have been incurred (for example valuation fees). 13. The criteria and conditions that will apply are as follows: Applicant must meet vulnerability criteria The applicant must not be able to access or afford commercial borrowing The property must fail the decent homes standard The maximum value of a loan must not exceed 50% of property value. Minimum loan amount is likely to be 2,000 and the maximum 30,000 Total of all secured borrowing must not exceed 70% of property value. The loan will be secured as a legal charge against the property 14. The money available as a result of the successful bid to the Regional Housing Board was in the form of supported borrowing. This created a number of problems to all the local authorities throughout the region associated with debt charges and Revenue Support Grant. For a local authority to act as banker it would have been necessary for it to be able to derive Revenue Support Grant. None of the local authorities in North Yorkshire were in a position to be able to take on the role as banker. Following discussions with the
Government Office for Yorkshire and the Humber it was suggested that Sheffield City Council could act as banker for the North Yorkshire scheme. Apart from providing a means of delivering a scheme in North Yorkshire the Government Office felt that there was much to be gained from a regional approach, as it is something that the Regional Housing Board would want to pursue in its next investment strategy. 15. Sheffield City Council agreed to act as banker and it will receive Revenue Support Grant. In addition Sheffield has been the lead authority in the development of a property appreciation loan package on behalf of nine local authorities in South and West Yorkshire. In November 2004 a consultative document was published by the ODPM for local authorities providing mortgages and related advice. Its aim essentially was to assist local authorities to comply with the principles of the Financial Services Act (FSA). 16. Sheffield s own knowledge and understanding of what was required had grown to the point that it felt able to adhere to the principles of the FSA without procuring external expertise. To date Sheffield has completed a lot of detailed development work with the assistance of their in-house specialist loans officers. This work includes: A robust local authority liaison framework set up and working A three year plan of estimated loan spend agreed with local authorities Documentation and process handbook completed Systems in place to fully administer loans across the region Training modules designed and roll out to client officers commenced Property valuation service and legal service procurement nearly complete Additional officer support for smaller authorities 17. Sheffield s services as administrative centre and banker will include the following: Manage and monitor all aspects of the scheme for which it has responsibility. Manage and monitor payments between third parties and participating local authorities Manage and monitor all aspects of loan provision, and act as the fundamental administrative centre for referrals from each member authority. Hold payments on approval of a loan, pending satisfactory completion of the work. Co-ordinate the development and consistency of loan provision cross authorities Co-ordinate and maintain information and statistics related to the evaluation of the whole scheme and its effectiveness 18. In order to pay for this service and part fund development costs Sheffield will top-slice 4% of the Regional Housing Board allocation. Loan repayment 19. The Home Appreciation Loan becomes repayable on the transfer of the property e.g. if the property is sold or the owner dies. 20. The client has the right to repay the loan in full at any time from their own funds should they wish to do so. There are no early repayment charges payable if the client chooses to repay early, however they must pay the re-valuation fee for their property.
21. When the loan is due for repayment Sheffield City Council will arrange for an independent re-valuation survey to be carried out on the property. 22. The amount to be repaid will be based on one of the following calculations, which ever is the lesser: The same percentage of the revised valuation of the client s home at the time the Home Appreciation Loan is redeemed : or The amount of the original loan charged at a fixed rate of 2.75% above the Bank of England base rate per year, added to the accumulating new loan balance at the end of each year, for the duration of the loan. 23. If the property has decreased in value or the value is unchanged, the maximum the client will be asked to pay back will be the original loan amount, not the original percentage borrowed, which takes account of the No negative equity guarantee. 24. Once the loan is repaid, the legal charge on the property will be released.