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					DCLG




Social HomeBuy
Guidance for Local Authorities




                                 April 2006
Contents


Introduction page 2
What is Social HomeBuy page 2
Purpose of Social HomeBuy Scheme page 2
How does it work? page 3
Who is eligible for Social Homebuy? page 3
Legal status page 4
Inheritance page 4
Discounts page 4
Who pays what? page 5
Consent to Dispose page 5
Providing Key Information page 6
Publicity page 6
Costs payable by Social HomeBuy purchasers page 6
Exemptions page 7
Valuations page 8
      Cost Floor page 8
Use of SHB Receipts page 8
Service Charges and Housing Revenue Account (HRA) subsidy page 9
      Sinking Funds page 10
Staircasing page 10
Role of HomeBuy Agents page 10
Resale of SHB properties page 11
      Repayment of Discounts page 11
Subletting page 12
Leases page 12
Monitoring of Social HomeBuy page 12
Frequently asked questions on Social HomeBuy page 13
Contact Details page 17
Annex A - Relevant Legislation page 18
Annex B - Specific Consents page 19
Annex C - List of Public Sector Landlords page 24




                                          1
Introduction

This document gives guidance for local authorities on the voluntary Social HomeBuy (SHB)
scheme which enables social tenants to buy a share in the home they currently live in, where
they cannot afford to buy outright under the Right to Buy (RTB).

The guidance applies only to England and is specific to local authorities. Although SHB may
be offered by local authorities and housing associations, there are some important
differences between the two sectors in how the scheme operates. Details of how the scheme
will operate for housing association tenants can be found in the Social HomeBuy Chapter of
the Housing Corporation’s Capital Funding Guide available on the Housing Corporation’s
website at http://www.housingcorp.gov.uk/.

This guidance is not exhaustive. Nor should it be taken as an authoritative interpretation of
the law. Local authorities should consult the statutory provisions relevant to the scheme (see
Annexes A and B below) and obtain their own legal advice where appropriate.


What is Social HomeBuy

In September 2005, the Government published its Response to Consultation on the
proposals set out in its earlier document HomeBuy – Expanding the Opportunity to Own. This
is available online at: http://www.communities.gov.uk/index.asp?id=1157066. It details the
new HomeBuy scheme, which replaces from 1 April 2006 the previous shared ownership and
HomeBuy equity loan schemes offered by housing associations. There are three elements to
the new scheme - Social HomeBuy, New Build HomeBuy and Open Market HomeBuy,
details of which can be found on the Department for Communities and Local Government
(DCLG) website at: http://www.communities.gov.uk/index.asp?id=1162813

•       Social HomeBuy will enable tenants of participating local authorities and housing
        associations to buy at a discount a share in the home they currently occupy

•       New Build HomeBuy will enable people to buy a share of a newly built home (generally
        built for a housing association)

•       Open Market Homebuy will enable people to buy a home on the open market. They will
        purchase a share, with a housing association providing an equity loan to cover the
        remainder of the purchase price.

Social HomeBuy (SHB) including the element of the scheme that will be available to tenants
of participating local authorities will run as a pilot scheme during the two year period April
2006 to March 2008.


Purpose of Social HomeBuy Scheme

The SHB Scheme gives a local authority the opportunity to:

    •    offer home ownership to tenants who cannot afford to exercise
         the Right to Buy
    •    provide replacement affordable housing by using the recycled receipts from
         sales (see the ‘Use of SHB receipts’ section below).
    •    improve tenure mix on estates.




                                              2
How does it work?

Under Social HomeBuy, tenants of participating local authority landlords may buy a share in
their rented home (minimum 25%) through savings and/or a mortgage. They will pay the
relevant percentage of the market value less a discount equivalent to the same percentage
of the maximum available under the Right to Acquire (RTA) scheme in their area.

Owners will then pay a rental charge which is related to the share of equity retained by the
local authority. Local authorities will set the level of charges in accordance with the previous
rent and the terms of the lease, but subject to the limits set out in the ‘What are the costs’
section below.

Those owners who wish to move to full ownership will be able to do so over time provided
that they can sustain the costs. They may buy further shares in their homes in minimum
tranches of 10%, up to a maximum of 100%. Alternatively, the purchaser may buy the
property outright at the outset. If they do so they will be eligible for the full level of SHB
discount available in their area. However it is likely that a tenant who wishes to buy outright
would prefer to exercise the Right to Buy, as the discount could be higher than under SHB.

Local authorities will be able to retain all receipts generated by SHB sales rather than pooling
them, provided that the receipts are invested in affordable housing (see ‘the ‘Use of SHB
receipts’ section below) or are used to cover the costs of running the SHB scheme.

The Government expects local authorities to publish their policy on Social HomeBuy and to
make the published document available to tenants. The policy should set out the terms of the
scheme, specify which properties are excluded from the scheme (if any), and the authority’s
criteria for determining applications for Social HomeBuy, including how it will check that an
applicant can afford and sustain home ownership.

Social HomeBuy is a voluntary scheme. Local authorities will have discretion over whether to
participate, and which properties to offer for sale.

Under sections 32 to 34 of the Housing Act 1985 (the Act), local authorities already have
powers to sell homes on the shared ownership terms permitted by the general consent for
the disposal of Part 2 dwelling-houses on shared ownership terms 2005 (General Consent
C). However, General Consent C is not specific to Social HomeBuy. A new specific consent
under sections 32 to 34 of the Act (see Annex B) will be issued by the Secretary of State to
local authorities that choose to offer Social HomeBuy pilot schemes.

Who is eligible for Social HomeBuy?

As with the Right to Buy, Social HomeBuy will be available to secure tenants who were
public sector tenants before 18 January 2005 (and have been a public sector tenant
continuously since that time) and have spent a minimum of two years as a public sector
tenant.

For tenancies created on or after 18 January 2005, Social HomeBuy will be available to
tenants who have been a tenant of a public sector landlord for at least five years (see Annex
C for a list of public sector landlords.

The prospective tenant must also not be in rent arrears or in breach of their tenancy
agreement. Tenants who meet the eligibility criteria when they apply must continue to do so
up to the exchange of contracts.

Tenants not eligible include those who are undischarged bankrupts or with a bankruptcy
petition pending, those subject to a formal creditors’ agreement made under the Insolvency

                                               3
Acts, tenants who are obliged to give up possession of tenant properties in pursuance of an
order of the court, and those who are the subject of a suspended possession order (whether
or not they are in breach of the order).

Legal Status

When a tenant buys a share of a property through Social HomeBuy, they will be granted a
lease by their landlord, usually for 125 years. This will entitle the purchaser to live in the
property as an owner-occupier. Protection of the local authority’s entitlement to repayment of
discount will constitute a second charge on the property (as under the Right to Buy). The
mortgage lender has first charge. The local authority will retain the freehold (or in some
cases a superior lease) of the property and, through the Social HomeBuy lease, will be able
to require that the leaseholder complies with certain conditions including paying the rental
charge (see the ‘Who pays what? section below). The lease will also set out how purchasers
can buy further shares in the property.

Inheritance

If someone who buys through Social HomeBuy dies, their leasehold interest will pass under
the normal legal rules regarding inheritance, either in accordance with their will or under
intestacy provisions. If the deceased person was a joint owner of the leasehold interest, the
other owner will continue as before, now as the sole leaseholder. If a member of the person’s
family or their partner who is already living in the property inherits ownership, that person will
be able to continue to live there and will become responsible for the costs of running the
property and keeping up the mortgage repayments.

If the person who has inherited ownership does not wish to stay in the property, it will be
sold. In the first instance, the landlord must be offered the opportunity to nominate another
purchaser or to buy back the property - see the Resale paragraph, below. If the landlord
does not take up this option, the owner may sell their share of the property on the open
market. If the new owner of the leasehold interest was not living in the property when the
previous owner died, it will be open to the new leaseholder to move into the property. If the
new leaseholder does not live in the property and there is an non-owning occupant left in the
property, that occupant will not be a secure tenant and it will be the responsibility of the new
leaseholder whether he or she should continue in occupation – subject however to any term
the local authority may have included in the lease prohibiting or controlling subletting.

Discounts

If they choose to purchase shares in their homes under Social HomeBuy, tenants will be
eligible for a maximum discount equivalent to the RTA discount available in their area (ie,
between £9,000 and £16,000), pro-rata to the size of their initial equity share of the property.
For example, a tenant buys a 50% share of their home, s/he will qualify for 50% of the
eligible discount. Purchasers will have the option to buy further shares but, if they do this,
they will not receive any discount on these shares.

Where the RTA discount for the area exceeds 50% of the value of the property, the
maximum amount of Social HomeBuy discount available will be limited to 50% of the value of
the property.

Who pays what?

Local authorities will be able to use their SHB receipts to cover the costs of running a Social
HomeBuy scheme (including those of collecting the rental charges). The power to do this is
contained in The Local Authorities (Capital Finance and Accounting) (Amendment) (England)
Regulations 2006 - Statutory Instrument 2006 No. 521.


                                                4
The purchaser pays for their share of the property through savings and/or a mortgage, and
subsequently pays the appropriate rental charge on the share of the property retained by the
landlord. Purchasers will also pay Stamp Duty (see “Stamp Duty” section below) and their
own legal fees.

The rental charge payable by a purchaser under Social HomeBuy should not exceed 3% 1 of
the remaining equity owned by the landlord. The Government’s target average for rental
charges is 2.75%, but it expects that some providers may choose to levy lower charges. It
has not specified a lower limit, but reminds landlords that a positive rent must be charged.
Rental charges may reflect the fact that the purchaser will be taking on full responsibility for
repair and maintenance.

Local authorities may wish to use a lease – either their own or the model lease prepared as a
guide by the Department for Communities and Local Government – which determines the
Social HomeBuy rental charge by applying the appropriate percentage (reflecting the share
still owned by the authority) to the previous rent for the whole property. In such cases, it may
be necessary for the authority to reduce the level of the previous rent to ensure that the
Social HomeBuy rental charge payable by the purchaser does not exceed 3% of the value of
the share retained by the authority. The justification for such reduction would be that
responsibility for repair and maintenance has now been transferred to the purchaser.

Purchasers are responsible for all the costs of maintaining their homes and for a proportion
of management costs pro-rata to the share that they own. Information about how this affects
the local authority’s Housing Revenue Account subsidy in respect of maintenance and
management costs is given in the section on `HRA subsidy’, below.


Consent to Dispose

Section 32 of the Housing Act 1985 gives local authorities a power to dispose of land held for
the provision of housing accommodation. But such disposals may not be made without the
Secretary of State’s consent. The Secretary of State has issued a series of general consents
for such disposals. Consent C enables local authorities to dispose of leasehold interests on
shared ownership terms, including staircasing up to 100% ownership. Although leasehold
sales under Social HomeBuy could be made on the basis of Consent C, such leases could
not include a condition prohibiting subletting. The Secretary of State will therefore issue to
each pilot local authority a specific Social HomeBuy consent tailored to the scheme. This will
include consent under section 33 of the Housing Act 1985 to a term prohibiting subletting.
The specific consent will also require that:

•      the rent charged on the landlord’s remaining equity must not be more than 3% of its
       market value; and

•      the period of tenancy eligibility criteria for Social HomeBuy are the same as those for
       Right to Buy.

Unlike General Consent C, the specific consent will not apply to certain tenants who are not
secure tenants, or who are not tenants of the property in question. In addition, the specific
consent will not require that cost floor calculations should be taken into account in
determining the discount (see `Cost Floor’ section, below).

Providing Key Information

It is important that prospective Social HomeBuy purchasers are in a position to consider the
costs and responsibilities of buying their own home before making a decision to go ahead.

1
    Annual rent increase are to be limited to RPI plus 0.5%, using the September RPI figure published annually.

                                                         5
Local authorities are therefore required to offer prospective buyers information about the
initial and ongoing costs of home ownership. This should include information about:

i)     Initial costs – eg, stamp duty, legal and survey fees, mortgage and valuation fees

ii)    Ongoing costs – eg, mortgage repayments, buildings insurance and the costs of
       upkeep including service charges.

More details on service charges are below.


Publicity

Local authorities operating the scheme are responsible for distributing publicity material to
their tenants. HomeBuy Agents may publicise the general existence of the scheme (see the
`HomeBuy Agents’ section below)


Costs payable by Social HomeBuy purchasers

Survey and Legal costs

SHB purchasers will be responsible for their own legal costs and the costs of obtaining a
mortgage for their contribution to the purchase price of the home. They will also be
responsible for meeting the cost of a survey of the condition of the home.

Mortgage and Valuation Fees

The prospective tenant must be able to obtain a mortgage and/or have savings to cover the
share they wish to purchase, and have savings to cover the other costs of buying a home,
such as legal costs.

Insurance

SHB properties will need to be insured by means of an appropriate buildings insurance policy
in case the home is destroyed by fire or similar hazard. This gives the purchaser protection
against losing their home in a disaster. The local authority would normally take out the
insurance, and the SHB purchaser would be expected to pay for this. In blocks of flats, the
cost of insurance will normally be shared between the owners of individual flats.

Stamp Duty

Social HomeBuy purchasers are responsible for the payment of their Stamp Duty Land Tax
(SDLT). They have a choice about the basis on which they pay SDLT:

(1) Election to Pay on Market Value (MV) - as if purchasing the whole property
(2) Election to Pay on Premium and Net Present Value (NPV) of Rent - on the basis of the
share purchased plus the value of the rent (in the vast majority of cases no tax is due on the
value of the rent). However, in addition to paying 1% on NPV of rent over £125,000, there is
also a payment of 1% on the entire premium if the annual rent is more than £600.

If a SHB purchaser elects to pay on premium and NPV of rent, they may have to pay stamp
duty even though the total value of the property being purchased is less than £125,000, the
threshold at which a person is exempt from stamp duty on residential properties. This is
because the value of the share purchased plus the annual rent payable may exceed the
£125,000 threshold. For example, if a SHB purchaser buys a 25% share of a £125,000
property and pays the Social HomeBuy target rent on the unsold equity (ie, 75%) the annual

                                              6
rental charge would be approximately £2,813. The rent would exceed the £600 annual rent
threshold and the Social HomeBuy purchaser would have to pay SDLT at 1% on the
premium.

The Stamp Duty office will provide costs on the two options for paying stamp duty – ie,
Election to Pay on MV and Election to pay on Premium and NPV of Rent. However, it cannot
advise purchasers which option to choose. Local authorities may wish to advise Social
HomeBuy purchasers of the implications of the second option (Election to pay on Premium
and NPV of rent).

The Social HomeBuy discount will be treated for SDLT purposes in the same way as the
discount for Right to Buy and Right to Acquire transactions; ie, SDLT is not payable on the
discounted amount.

When staircasing takes place, the Social HomeBuy owner will not be liable for SDLT on the
further share purchased. However, this is subject to the condition that immediately after
staircasing, the Social HomeBuy owner’s share in the property must not be greater than
80%.

Exemptions

The same exemptions which apply to the existing Right to Acquire scheme will apply to
Social HomeBuy, including :

       •   properties in areas designated as rural under that scheme by order of the
           Secretary of State (certain districts consisting of parishes with a population of
           3,000 or less) ie, properties in those areas defined in Statutory Instruments
           (1997/620-625 and 1999/1307).

       •   homes let in connection with the tenant’s employment by the local authority or by
           another social landlord

       •   homes that are part of a group of homes designed with special facilities for letting
           to people with physical disabilities

       •   homes that are part of a group of homes let to tenants who are suffering or have
           suffered from a mental disorder where social services or other special facilities
           are provided

       •   homes that are part of a group of homes let to tenants who have special needs
           and require intensive housing support

       •   homes that are part of a group of homes particularly suitable for elderly people
           and are let to people aged 60 or over

which will be exempt from SHB.

Local authorities will also have discretion over which types of property to offer under the SHB
scheme, in line with regional and local housing strategies. As indicated above, they are
expected to publish their policy (and make this available to tenants) on which properties are
excluded from the scheme, and set out the criteria they will use in determining applications
for Social HomeBuy.




                                              7
Valuations

At the initial purchase of a share of a property, the landlord will arrange and pay for the
valuation. The landlord will also arrange the valuation when a person who has bought under
Social HomeBuy wants to buy a further share of the property, but the costs of such a
valuation may be paid by the purchaser to the landlord on demand. In other words, the
landlord will have discretion whether or not to charge the purchaser of a further share for the
valuation at that time. This is set out in the model Social HomeBuy house lease [4th
Schedule Paragraphs 2(2) and 5] and model Social HomeBuy flat lease [5th schedule
Paragraphs 2(2) and 5].


Cost Floor

General Consent C requires that the cost floor rules which apply under the existing Right to
Buy scheme will apply to any shared ownership sales in respect of initial shares sold (the
cost floor is first calculated on the basis of the costs that would be taken into account for
selling the whole property with vacant possession, and then the appropriate proportion is
applied).

However, the specific consent for Social HomeBuy sales will not require cost floor
calculations relating to the amount of discount. As the discount available under Social
HomeBuy is equivalent to the amount available under the existing Right to Acquire scheme
in that area, it is very unlikely that a cost floor calculation would be relevant in most cases. If,
exceptionally, a tenant applies to buy a property under Social HomeBuy and sufficient work
has been carried out to justify such a calculation, the local authority may wish to include this
as one of its published criteria for refusing the Social HomeBuy application.


Use of Social HomeBuy Receipts

Local authorities will be able to retain all receipts from Social HomeBuy sales (ie, from both
sales of initial shares and of further shares) rather than pooling part of them, provided that
they invest all such receipts in affordable housing or use them to cover the costs of running
the Social HomeBuy scheme.

The Local Authorities (Capital Finance and Accounting) (Amendment) (England) Regulations
2006 provide for a Social HomeBuy allowance which is used to reduce the amount of capital
receipts from Social HomeBuy disposals that would otherwise have to be pooled. An
authority’s total Social HomeBuy allowance is the total value of the amount of contributions
which the authority has made, or has decided to make but has not yet made, on or after 1
April 2006, towards:

•   acquiring buildings or other land to be used for affordable housing
•   preparing land for development for affordable housing
•   constructing, improving or repairing dwellings to be used for affordable housing
•   providing dwellings, to be used for affordable housing, by converting all or part of a
    building
•   paying a contribution, grant or subsidy under any power conferred on the authority under
    any enactment
•   giving consideration for any benefit that the authority has received, or will receive, by
    virtue of the provision of affordable housing




                                                 8
The authority’s total Social HomeBuy allowance also includes (to the extent not included in
the above) the amount of expenditure which the authority has incurred, or has decided to
incur but has not yet incurred, on or after 1 April 2006, by:
•   making grants under section 129 of the Housing Act 1988 (ie, Cash Incentive Schemes)
    to help tenants to obtain other accommodation and thus to vacate properties that are to
    be used for affordable housing
•   meeting the administrative costs of or incidental to a Social HomeBuy disposal
•   meeting other administrative costs of or incidental to the running of the Social HomeBuy
    scheme
•   meeting the administrative costs of or incidental to collecting rental charges payable by
    Social HomeBuy owners on the share of their homes retained by the local authority.
The Regulations also provide that receipts from Social HomeBuy sales that are £10,000 or
less are still to be treated as capital receipts for the purposes of pooling. The reason for this
is that, under Social HomeBuy, purchasers may buy further shares in their homes in
minimum 10% tranches of the market value of the property. The sale of each further share by
the authority involves a separate disposal of an interest in housing land. In areas of relatively
low residential property prices, such 10% tranches might be worth less than £10,000. It
would be inconsistent to treat receipts arising from further shares in such areas as being
different from those arising from purchases of further shares in areas where local residential
property prices are generally higher, given that both arise from sales under the Social
HomeBuy scheme.


Service Charges and Housing Revenue Account (HRA) subsidy

Tenants who buy their homes under Social HomeBuy will be required to take full
responsibility for maintenance (including major works), regardless of the size of their share.
They will also be responsible for management costs (ie, the costs of managing a block of
flats) in proportion to the size of the share they have purchased.

Local authorities must provide estimates of service charges for tenants wishing to purchase a
Social HomeBuy share. Local authorities selling flats under Social HomeBuy must also
provide estimates of service charges in respect of anticipated repairs and improvements.
These will be binding for the first five years of the lease. The local authority must also inform
Social HomeBuy applicants of any known structural defects affecting the building and ensure
that if these are to be repaired during the first five years after Social HomeBuy, the works
and their cost are included in the service charge estimates for repairs.

Local authority properties sold under Social HomeBuy will remain in the HRA subsidy
system, but they will not attract subsidy for maintenance or Major Repairs Allowance.
However, they will attract subsidy for management costs pro-rata to the share retained by the
authority. Local authorities may apportion service charges pro-rota to the value of the equity
share purchased, but they will not be eligible for any HRA subsidy in respect of these costs.


Sinking Funds

Local authorities offering Social HomeBuy to their tenants may wish to consider setting up
sinking funds to help them to manage their maintenance responsibilities. However, careful
consideration should be given before doing so, to ensure that the authority acts appropriately
as trustee of the fund and that there is a properly planned maintenance programme to
ensure that contributors to the fund are treated fairly.




                                               9
Staircasing

Under Social HomeBuy, owners will be able to “staircase up” (ie, buy further shares in their
homes) in minimum 10% tranches of the market value at that time. They must buy a
minimum of 10% of the market value, but there are no restrictions on the maximum size of
the further share that they can purchase. When a Social HomeBuy owner staircases up, s/he
is not entitled to any discount on the further share(s) purchased.

Owners may staircase up to 100%, as the Government wants purchasers to have the
opportunity to move to full ownership wherever possible. In view of the costs of staircasing
up, in cases where the purchaser already owns a large share (eg, 85%) and wishes to
increase their share further, we expect landlords to encourage purchasers to move directly to
full ownership.

Staircasing down (selling back shares) will be possible, but only in exceptional
circumstances; eg, where in the landlord’s view the owner is facing significant financial
difficulties.


Role of HomeBuy Agents

From 1 April 2006, HomeBuy Agents have been appointed to offer a one-stop-shop service
to tenants in respect of all low cost ownership schemes. It is open to local authorities to use
HomeBuy Agents to administer Social HomeBuy. If a local authority wishes to use a
HomeBuy Agent, it must reach an agreement on the funding for such a service. For the
funding periods 2006-07 and 2007-08, the HomeBuy Agent role will be carried out by
Registered Social Landlords (RSLs). Thereafter, this role may be open to non RSLs.

Contact details of HomeBuy Agents are available online at:
http://www.communities.gov.uk/index.asp?id=1164734#


Resale of Social HomeBuy properties

A key objective of Social HomeBuy is to ensure that affordable housing is retained where it is
needed - for example, in areas of high demand, or in places where opportunities for
alternative provision are limited. To this end, local authorities may require owners who wish
to sell to first offer their properties either to the local authority or to another social landlord in
the area, at full market value. The local authority may buy back the property itself or
nominate another purchaser. The value must be agreed between the parties or, if they are
unable to agree, will be determined by the District Valuer (the Office of the Deputy Prime
Minister will meet the cost of employing the District Valuer). If the offer is not accepted within
8 weeks, the Social HomeBuy owner will be free to sell the property on the open market.

Social HomeBuy receipts may be used to fund buy-backs. It is the intention to extend to
Social HomeBuy buy backs the financial assistance that Government already gives to local
authorities that wish to buy back homes sold under the Right to Buy scheme.


Repayment of Discounts

The discount available when a tenant purchases an initial share under Social HomeBuy is
subject to repayment on the same basis as under the Right to Buy scheme. If a Social
HomeBuy purchaser resells their share within 5 years from the date of purchase, they will be
required to repay their discount as set out below.

a. sale within year 1, all of the discount is repaid, calculated as above

                                                 10
b.   sale within year 2, 80% of the amount calculated as above
c.   sale within year 3, 60% of the amount calculated as above
d.   sale within year 4, 40% of the amount calculated as above
e.   sale within year 5, 20% of the amount calculated as above
f.   no repayment is required after year 5.

The calculation of the amount of discount to be repaid will be based on the valuation of the
property at the time of resale, disregarding any value of any improvements made by the
owner since buying the initial share. For example, if the Social HomeBuy purchaser installs a
new bathroom or kitchen, neither the cost of this work or the value it may have added to the
property should be taken into account in any valuation for the purpose of repaying discount.

For example, if the property’s value at purchase was £160,000 and a 50% share was
purchased which would be equivalent to £80,000, with a discount of £16,000 applied, the
discount received would be £8,000 (ie, 50% of the discount). The discount would be
equivalent to 10% of the value of the share purchased. If the property’s value subsequently
increased and the 50% share was sold for £100,000 during year 1, the repayment would be
£100,000 x 10% = £10,000. If the same 50% share of the property was sold within year 3 for
£150,000, the repayment due would be £150,000 x 10% = £15,000 x 60% = £9,000.

If property values fall, the same calculation method is to be followed. Continuing the above
example, if the property value dropped and the 50% share was sold for £60,000 within 1
year, the repayment would be £60,000 x 10% = £6,000.
Subletting

The Specific consent for the pilot project which will be issued by the Secretary of State will
allow local authorities to grant Social HomeBuy leases which include terms prohibiting or
restricting the sub-letting of part or whole of a Social HomeBuy property. (See Annex B).


Leases

Model Social HomeBuy leases (ie, a house lease and flat lease) are available on line, at:
http://www.housingcorp.gov.uk/server/show/ConWebDoc.8720. They are based on a shared
ownership lease model where the provider retains the freehold and grants a long lease. The
Government encourages local authorities to adopt these model leases, as they are
acceptable to the Council of Mortgage Lenders and to key individual lenders.

Local authorities that wish to amend the model Social HomeBuy lease should inform
mortgage lenders of this, having first consulted DCLG.


Monitoring of Social HomeBuy

The two year pilot of Social HomeBuy will be evaluated by DCLG in partnership with pilot
authorities. As part of this, DCLG will collect data of the same kind as that collected from
housing associations; for example, expressions of interest compared to actual sales during
the two year pilot period, numbers of sales, the size of shares purchased, the size of
discounts allowed, types of people who have used the scheme, kinds of properties sold,
issues raised by affordability tests, the number of enquiries and staircasing. The information
will be used only for statistical purposes.

DCLG will also meet regularly with pilot authorities, and will facilitate a SHB pilots forum for
sharing experiences between pilot local authorities and housing associations.




                                               11
Frequently Asked Questions


What is Social HomeBuy?

Social HomeBuy (SHB) enables social tenants to buy a share in the home they currently
occupy, at a discount. For local authority properties, SHB is only available to tenants who are
eligible for the Right to Buy.

Why has the Government introduced SHB?

The Government wants to offer as many social tenants as possible the opportunity for
sustainable home ownership, in particular, those who cannot afford the Right to Buy.

Who is eligible for Local Authority SHB?

As with the Right to Buy, Social HomeBuy will be available to secure tenants. Those whose
tenancies started before 18 January 2005 qualify when they have been social tenants for
two years or more. Those whose tenancies started on or after 18 January 2005 qualify when
they have been social tenants for five years or more. In both cases, they must have been a
public sector tenant continuously during that time.

How much discount is available under SHB?

Tenants will be eligible for a discount equivalent to the maximum Right to Acquire discount
available in the area where they live (ie, between £9,000 and £16,000). The discount they
receive will be pro-rata to the size of the initial equity share that they buy – ie, if a tenant buys
a 25% share in an area where the SHB discount is £16,000, s/he will receive a SHB discount
of £4,000.

Can the SHB discount be reduced to take account of expenditure on the property by the
landlord?

No. The ‘cost floor’ which applies to the existing Right to Buy scheme does not apply to initial
shares bought under Social HomeBuy. The SHB discount can therefore not be reduced to
reflect what the local authority has spent on building, buying, repairing or improving the
property during the last 10-11 years before the date on which the market value of the home
is assessed. However in circumstances where such a calculation would reduce the amount
of discount, the local authority may wish to include refusal of a SHB application on this
ground in its published criteria for decision-making in individual cases.

Should local authorities publish the criteria they will use to decide on individual SHB
requests?

Yes. These criteria should be made available to tenants. They should include details of what
the local authority will take into account in responding to a request by a SHB owner to
staircase down, as well as responses to initial SHB purchase requests and requests to
staircase up.

Do tenants have a right to Social HomeBuy?

No. SHB is a voluntary scheme. Local authorities may decide to offer it only in certain areas,
or for certain properties. Also, they will apply an affordability test to determine whether a
tenant can afford to sustain home ownership.

Can tenants buy whatever shares they wish?


                                                 12
Tenants will be able to buy an initial share of at least 25%. They will also be able to ‘staircase
up’ by buying further shares, but these must be at least 10%.

Can tenants only buy minimum initial shares of 25% and further shares of 10%?

No. If after the affordability tests it appears that an applicant for SHB could afford a bigger
share, the local authority should advise them accordingly. But if it appears that a SHB
applicant cannot afford the minimum share or the share for which they have applied, the local
authority can decline to sell.

What are the costs to the SHB purchaser?

They will have to pay for any survey that they commission and fees to any solicitor or other
adviser that they employ. They will also have to pay Stamp Duty Land Tax.

Subsequently, if they need to borrow to pay for their share of the property, they will need to
keep up regular mortgage repayments and pay for building insurance. They will also have to
pay a rental charge (which will be limited to no more than 3% of the value of the remaining
equity share held by the local authority).

In addition, they will have to pay the full costs of maintaining their home and a proportion of
management costs pro-rata to the share they own. If they buy a flat, they will have to pay
annual service charges for services such as grass cutting and lift maintenance, and will also
have to pay service charges for major works (repairs and refurbishment) to the block in which
they live.

The fact that owners will now take over payment of these expenses should be a key factor in
determining a reasonable level of rent on the unpurchased share.

Does the rental charge have to be 3% or can the local authority set it higher or lower?

The Government has set a target average for rental charges of 2.75% of the value of the
local authority’s remaining equity in the property and recommends that this should not
exceed 3%. It hopes that some providers may be able to reduce this further. There is no
lower limit, but a positive rent must be charged. The level of rent should take into account the
owner’s liabilities for maintenance and repair. Local authorities may therefore choose to set a
rental charge that is lower than 2.75% if they can satisfy their auditors that this is financially
prudent and sustainable in terms of its overall housing strategy.

Can SHB purchasers buy further shares or sell their shares back to the landlord?

Under SHB, purchasers will be able to buy further shares (“staircase up”). They must buy at
least 10% more of the market value of the home. “Staircasing down” should only be allowed
in exceptional circumstances, where it is clear that SHB owners face financial difficulties.
This will be at the discretion of both the local authority and the lender.

Are there any exemptions to the scheme?

The same exemptions which apply to the existing Right to Acquire scheme will apply to
Social HomeBuy including:

        •   properties in areas designated as rural under the Right to Acquire scheme by
            order of the Secretary of State (certain districts which have parishes with a
            population of 3,000 or less)

        •   homes let in connection with the tenant’s employment by the local authority or by
            another social landlord

                                               13
        •   homes that are part of a group of homes designed with special facilities for letting
            to people with physical disabilities

        •   homes that are part of a group of homes let to tenants who are suffering or have
            suffered from a mental disorder where social services or other special facilities
            are provided

        •   homes that are part of a group of homes let to tenants who have special needs
            and require intensive housing support

        •   homes that are part of a group of homes particularly suitable for elderly people
            and are let to people aged 60 or over.

Will properties sold under SHB remain in the Housing Revenue Account (HRA)?

Local authority properties sold under SHB will remain in the HRA and the subsidy system.
But they will not attract maintenance subsidy or Major Repairs Allowance. However, they will
continue to attract subsidy for management costs pro-rata to the share retained by the local
authority.

Will SHB receipts be subject to the pooling arrangements for other receipts?

Not necessarily. Local authorities will be able to retain all receipts from Social HomeBuy
sales (ie, both initial shares and further shares) if they invest these in affordable housing or
use them to cover the costs of running the scheme. SHB receipts that are not used for the
specified purposes will be pooled at 75%, the other 25% being available to the local authority
to use.

What kinds of expenditure can SHB receipts be used for?

They can be used for:

•   acquiring buildings or other land to be used for affordable housing

•   preparing land for development for affordable housing

•   constructing, improving or repairing dwellings to be used for affordable housing

•   providing dwellings, to be used for affordable housing, by converting all or part of a
    building

•   paying a contribution, grant or subsidy under any power conferred on the authority under
    any enactment

•   giving consideration for any benefit that the authority has received, or will receive, by
    virtue of the provision of affordable housing

The authority’s total SHB allowance also includes (to the extent not included in the above)
the amount of expenditure which the authority has incurred, or has decided to incur but has
not yet incurred, on or after 1 April 2006, by:

•   making grants under section 129 of the Housing Act 1988 (ie, Cash Incentive Schemes)
    to help tenants to buy other properties and thus to vacate properties that are to be used
    for affordable housing

•   meeting the administrative costs of or incidental to a SHB disposal

•   meeting the administrative costs of or incidental to the running of the SHB scheme

                                               14
•   meeting the administrative costs of or incidental to collecting rental charges payable by
    SHB owners on the share of their homes retained by the local authority.


Will local authorities be required to set up sinking funds to help SHB owners pay service
charges?

Local authorities will not be required to set up sinking funds, but will be able to do so if they
wish.

What if there is pressure from tenants complaining that their LA does not offer SHB?

Social HomeBuy is a voluntary scheme. The Government is encouraging participation but will
not force any local authority to participate in the scheme. There might be scope for tenants to
benefit from New Build HomeBuy or Open Market HomeBuy, if Social HomeBuy is not
available in their area.

Can SHB owners sell their homes?

Yes, a SHB owner can sell their SHB share or sell their home if they have staircased to
100% ownership. However, the SHB owner who wishes to sell their home will have to offer it
back to the local authority from which they bought it. Local authorities have a right of first
refusal to buy back the property or to nominate a new buyer. If the local authority decides not
to do either, the owner may sell on the open market.

What happens if someone who buys through SHB dies?

If someone who buys through SHB dies, the normal rules of inheritance will apply to the
leasehold interest. In many cases it is likely that this will mean that a member of their family
or their partner who is already living in the property inherits ownership and continue to live in
the home as the new leaseholder. In such circumstances, the costs of running the home and
keeping up the mortgage repayments will normally become the responsibility of whoever is
living in the property.




                                               15
 Contact Details


Dorett McFarquhar                           Margaret Uhure
Dept for Communities and Local Government   Dept for Communities and Local Government
Zone 2/G6                                   Zone 2/F6
Eland House                                 Eland House
Bressenden Place                            Bressenden Place
London                                      London
SW1E 5DU                                    SW1E 5DU

E-mail:                                     E-mail:
Dorett.Mcfarquhar@communities.gsi.gov.uk    Margaret.Uhure@communities.gsi.gov.uk




                                            16
Annex A

Relevant Legislation

The Housing Act 1985 - section 32 (also sections 33 and 34)

The Local Authorities (Capital Finance and Accounting) (England) Regulations 2003 (SI
2003/3146 as amended by SI 2004/534, SI 2004/3055 and SI 2006/521).




                                            17
Annex B

Specific consent for the disposal of Part 2 dwelling-houses on shared ownership
terms under the Social HomeBuy pilot scheme


The First Secretary of State, in exercise of the powers conferred by sections 32(2), 33(2) and
34 of the Housing Act 1985 and section 133(1) of the Housing Act 1988 gives the following
specific consent to the London Borough of … for the period from 1st April 2006 to 31st March
2008.

Interpretation

1. In this consent:

   “the Act” means the Housing Act 1985;

   “the authority” means the London Borough of …;

   “disposal”, in the case of a disposal by the authority, means (except where the contrary
   appears):

       a. a conveyance of a freehold interest;

       b. an assignment of a lease;

       c. the grant of a lease for a term of at least 99 years;

       d. where the interest held by the authority is leasehold, the grant of a lease for a
          term equal to the unexpired term of the lease less not more than one year; and

       e. where a building contains two or more dwelling-houses and the authority has
          granted such a lease as described in sub-paragraph (c) or (d) of one of them after
          11th June 1981, the grant of a lease of another of the dwelling-houses expiring
          either:

                 i. where one such lease has been granted, at the end of the term of that
                    lease; or

                 ii. where more than one such lease has been granted, at the end of the term
                     of the last to expire;

   and “dispose” shall be construed accordingly.

   “dwelling-house” means a house or flat, including any yard, garden, out-houses and
   appurtenances belonging to or usually enjoyed with it, held for the purposes of Part 2 of
   the Act;

   “flat” and “house” have the same meanings as in section 183 of the Act;

   “initial percentage” has the meaning given by paragraph 4;

   “market value” has the meaning given in the Appendix;

   “portioned percentage” has the meaning given by paragraph 3;



                                              18
   “relevant percentage” in relation to a dwelling-house means 100 per cent less the
   aggregate of the initial percentage and any portioned percentage;

   “right of pre-emption” means a condition precluding the disposal of the land by the
   transferee unless:

       a. he first notifies the authority of the proposed disposal and offers to dispose of the
          land to the authority; and

       b. the authority refuses the offer or fails to accept it within one month of it being
          made;

   “RPI” means the United Kingdom General Index of Retail Prices, or in the event that this
   ceases to be published a substituted suitable published index of general prices or the
   value of money chosen by the landlord, and “the relevant RPI” in relation to a rent review
   means the RPI published most recently before that review;

   “secure tenancy” and “secure tenant” have the same meanings as in Part 4 of the Act;

   “shared ownership lease” means a lease of a dwelling-house granted on payment of a
   premium calculated by reference to a percentage of the market value of the dwelling-
   house; and

   “tenancy” includes a licence to occupy and related expressions are to be construed
   accordingly.

Consent

2. The authority may grant a shared ownership lease of a dwelling-house to a tenant of that
   dwelling-house who has the right to buy it under Part 5 of the Act.

Purchase of shares

3. A shared ownership lease granted under this consent shall be subject to the following
   conditions:

       a. the lease is granted for an initial premium which is a portion (the “initial
          percentage”) of the market value of the dwelling-house;

       b. the initial percentage shall be at least 25 per cent;

       c. the lease is upon terms that the tenant (including his successor in title) may:

               i. on one or more occasions pay a premium consisting of a further portion of
                  not less than 10 per cent (“the portioned percentage”) of the market value
                  of the dwelling-house; and

              ii. purchase the freehold or leasehold reversion to the lease for a price equal
                  to the relevant percentage of its market value; and

       d. the minimum portioned percentage specified in the lease shall not be more than
          25 percent.




                                               19
Rent

4. The rent charged under the lease shall not be more than 3% per annum of the sum
   calculated by applying the relevant percentage to the market value, save that the
   authority may carry out an annual rent review subject to the provisions of paragraph 5.

5. Where the authority carries out an annual rent review, the percentage by which the rent
   may be increased shall not exceed the percentage increase of the relevant RPI plus
   0.5%.

Sub-lease of the dwelling-house

6. The authority may include in the lease a condition which -


       a. precludes the lessee from granting a sub-lease of the whole or part of the
          dwelling-house; or

       b. requires the authority’s consent to a grant by the lessee of a sub-lease of the
          whole or part of the dwelling-house.

Discount

7. Any lease granted under this consent may provide that for the calculation of the initial
   premium referred to in paragraph 3(a) the market value of the dwelling-house may be
   subject to a discount in accordance with the provisions of paragraphs 8 and 9.

8. The discount applied to the payment made in respect of the initial percentage of the
   market value of the dwelling-house shall not exceed the same percentage of the discount
   referred to in paragraph 9.

9. The discount may not exceed the discount specified in the authority’s area in relation to
   the right to acquire under section 17(1)(a) of the Housing Act 1996 at the date on which
   the market value of the dwelling-house is assessed.


Right of pre-emption

10. The authority may include in any lease granted under this consent a condition reserving
    the right of pre-emption in respect of the assignment of the lease, provided the right is
    exercisable only when the relevant percentage is more than nil.

11. The consideration for the surrender of a lease under the right of pre-emption shall be the
    aggregate of the initial percentage and any portioned percentage of the market value of
    the dwelling-house at the date the right of pre-emption is exercised subject to the
    deduction of any discount repayable under the covenant imposed pursuant to section 35
    of the Act.

Limitation on pre-emption

12. No disposal under this consent shall reserve a right of pre-emption to the authority except
    one:

       a. permitted under paragraphs 10 and 11; or

       b. required by section 36A of the Act.

                                              20
21
Joint purchasers

13. If the authority may dispose of a dwelling-house under this consent to an individual it may
    dispose of it to that individual together with one or more other individuals on the same
    terms as those upon which it would have disposed of it to the individual.

Subsequent disposals

14. The further consent of the Secretary of State shall not be required under section 133 of
    the Housing Act 1988 to the subsequent disposal of a dwelling-house which has been
    disposed of in accordance with this consent.


Signed
…Division
Department for Communities and Local government

Date




                                              22
Appendix

1. The market value of the dwelling-house means the price which the interest of the tenant
   would realise if sold on the open market with vacant possession by a willing vendor on
   the assumptions that:

           a. the tenant had previously purchased the freehold or leasehold reversion to the
              lease;

           b. any mortgage, interest or right over the dwelling-house created by the tenant
              is disregarded;

           c. any improvement to the dwelling-house made by the tenant or any of his
              predecessors in title is disregarded; and

           d. any failure by the tenant or any of his predecessors in title to carry out any
              repairing obligations under the lease is disregarded.

2. The market value of the dwelling-house shall be assessed:

           a. in relation to the payment of a premium for the initial percentage not earlier
              than three months before the date the tenant in writing either applies, or
              agrees to an offer, for the grant of the lease;

           b. in relation to the payment of a premium for a portioned percentage or the
              reversion, not earlier than three months before the date the tenant agrees in
              writing to pay that premium; and

           c. in relation to the surrender of a lease, not earlier than three months before the
              date the tenant offers in writing to surrender.

3. For the purposes of determining rent, the market value to which the relevant percentage
   is to be applied is that which has most recently been assessed in accordance with
   paragraphs 1 and 2 of this appendix.




                                              23
Annex C

LIST OF PUBLIC SECTOR LANDLORDS

A tenancy of any of the public bodies listed below will count as an eligible residency for SHB
purposes .

•   a district council
•   a county council
•   a London borough council
•   the Common Council of the City of London
•   a Council on the Isles of Scilly
•   any of the following bodies which were set up when the Greater London Council and the
    metropolitan county councils were abolished:
      ⇒          a metropolitan county policy authority the Northumbria Police Authority
      ⇒          a metropolitan county fire and civil defence authority
      ⇒          the London Fire and Civil Defence Authority
      ⇒          a metropolitan county passenger transport authority
      ⇒          the London Waste Regulation Authority
      ⇒          the West London, North London, East London and Western Riverside
                 Waste Disposal Authorities
      ⇒          the Merseyside and Greater Manchester Waste Disposal Authorities
      ⇒          the London Residuary Body
      ⇒          a metropolitan county residuary body

    •   a new town or urban development corporation
    •   the Commission for the New Towns
    •   the Development Board for Rural Wales
    •   a housing action trust
    •   a Registered Social Landlord which is registered with the Housing Corporation
        or Housing for Wales (including charitable RSLs and RSLs which do not get
        public funds, but not fully mutual co-ops)
    •   The Housing Corporation
    •   Housing for Wales
    •   Fire authorities
    •   Internal drainage boards
    •   London Regional Transport
    •   Parish councils
    •   Passenger transport executives
    •   Police authorities
    •   AFRC Institute for Grassland and Animal Production
    •   Agricultural and Food Research Council
    •   Area Electricity Boards
    •   British Airports Authority
    •   British Broadcasting Corporation
    •   British Coal Corporation
    •   British Gas Corporation British Railways Board
    •   British Steel Corporation British Waterways Board
    •   Central Electricity Generating Board Church Commissioners
    •   Civil Aviation Authority
    •   Electricity Council
    •   English Sports Councils
    •   Government Departments+
    •   Historic Buildings and Monuments Commission for England
    •   Lake District Special Planning Board
                                             24
•   Lee Valley Regional Park Authority
•   Medical Research Council
•   National Bus Company
•   National Health Service Trusts
•   National Rivers Authority
•   National Environment Research Council
•   Nature Conservancy Council for England
•   Peak Park Joint Planning Board
•   Post Office
•   Science and Engineering Research Council
•   Trinity House ++
•   United Kingdom Atomic Energy Authority
•   United Kingdom Sports Council
•   Water Authorities
•   Community councils in Wales
•   Countryside Council for Wales
•   National Library of Wales
•   National Museum of Wales
•   Sports Council for Wales
•   Welsh Development Agency
•   Commissioners of Northern Lighthouses
•   Highlands and Islands Enterprise Board
•   North of Scotland Hydro-Electric Board
•   Scottish Homes
•   Scottish Natural Heritage
•   Scottish Sports Council
•   South of Scotland Electricity Board
•   Education and Library Boards in Northern Ireland
•   Fire Authority for Northern Ireland
•   Northern Ireland Electricity Service
•   Northern Ireland Housing Executive
•   Northern Ireland Transport Holding Company
•   Police Authority for Northern Ireland
•   Sports Council for Northern Ireland

    AND ANY PREDECESSOR OF THESE LANDLORDS

    + Includes National Health Service properties
    ++ Only in its capacity as a lighthouse authority




                                           25

				
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