The right for tenants to purchase their Local Authority (“LA”) homes at a discounted rate was introduced in 1980. This right was preserved for occupiers of properties transferred from an LA to a Housing Association (“HA”). Now the new reform of the right to buy has come in place.
The current Government have proposed extending this original Right to Buy to tenants of HAs (the “new Right to Buy”) in a bid to increase home ownership and direct approximately £30 billion in housing benefit, which is currently used for rent, towards helping occupiers buy their home. In turn, the owners will be less dependent on HAs for repairs and improvements. The Government have also pledged to build a social home for every property sold under the scheme to maintain the housing supply and address the criticisms of the 1980s scheme.
As HAs are independent, largely charitable organisations established for the purpose of providing affordable homes for those on low income, they will need to consider how to overcome the legal and practical hurdles of being forced to sell their assets, which are summarised as follows:
The new reform of the Right to Buy was initially piloted on a voluntary basis. The largest pilot in 2018 saw only a quarter of the homes sold being replaced. These findings have led to criticism that any houses sold need to be replaced quickly, in the same LA area on a like-for-like basis and that the cost of discounts must also not be funded from the sales stock, to avoid issues in delivery of additional affordable homes. With 1.1 million households currently on the waiting list for social housing, HAs cannot be forced to face the same issues as LA under the current Right to Buy.
HAs must be kept up to date with the latest proposals for eligibility of tenants for the new reform of the Right to Buy. Under the Preserved reform of the Right to Buy, HAs had a duty to ensure they provide information to tenants on how to exercise their Right to Buy and it is likely such requirements will also fall to them under the new scheme.
Under the Preserved Right to Buy, tenants and HAs are each responsible for their own legal costs. However, under the 2018 pilot, HAs could charge application fees of around £250 per application. Whilst this will ease the financial burden of the increased applications, it will not fully compensate the increased staffing and administrative costs HAs may face.
Properties subject to obligations under a section 106 agreement may have a fixed tenure, which would need to be released or varied. Some section 106 agreements may already contain exclusions from affordable user provisions for the existing Right to Acquire and Right to Buy schemes, but it is not yet clear if such exclusions will be broad enough to catch the new regime.
There are a number of potential issues when it comes to funding as the pilots suggest a significant impact on stock levels so in turn, the borrowing capacity of the HAs.
In low value areas, the loss of stock may not produce enough of a capital receipt to fund replacement. In a best-case scenario, there will be a time lag between each sale and a new property being available but for smaller HAs, it is difficult to see how they will be able to replace each property they lose.
It is also unknown as to how lenders will view schemes which, without the new reform of the Right to Buy, would have been a guaranteed source of rental income for the duration of any loan but may now become less valuable over time.
For buyers, will institutional lenders will be prepared to accept mortgage applications under the new Right to Buy when the mortgage is to be paid in whole or part through housing benefit?
Within the 2018 pilot, many HAs sought to include an optional overage clause to require the buyers to pay the HA a proportion of any uplift in value in the first 25 years of ownership. Such provisions were previously ruled unlawful and within the pilot, they also led to mortgage ability issues. HAs will therefore need to be conscious of the inclusion of such provisions due to the legal and practical implications to them and their tenants.
The charitable objectives and governance considerations relating to any proposed policy may also be problematic. The sector has been reregulated, giving HAs more freedom and flexibility in running their businesses. If the new proposal is mandatory, this would cause issues with Governmental control over charities by taking discretion away as to how they manage assets to benefit the local community and their residents.
Conclusion | Reform of the Right to Buy
Whilst the impact of this extension of the reform of the Right to Buy to HAs will not be known until such time as the full policy is available, especially the details of funding support to replenish their stock, it is clear the changes would cause multiple hurdles for HAs, regardless of their size, stock levels or geographical location. It is yet to be seen whether the proposal will come into fruition but there is a slight feeling of history repeating itself as the Conservative Government walk in the footsteps of their predecessors some twenty years ago.