Deliver 4 rented affordable homes for the price of 1
Let's Share uses the concept of shared ownership and the HCA's standard form lease to give Local Authorities and Housing Associations access to units of housing at much reduced capital investment levels. The action of buying a 25% share but having the right to sub-let a property as rented affordable housing means that today's limited capital budgets can deliver 4 times as many homes as the traditional development and full acquisition model.
Solve the volume delivery challenge in high value areas...
All the cost benefits of shared ownership... with the freedom to sub-let as rented property
Let's Share, from heylo housing, brings the part-buy part- rent affordability benefits of shared ownership to Local Authorities and Housing Associations looking to deliver new rented affordable housing.
Available on Section 106 properties being developed by house builders across the country, Let's Share allows Local Authorities and Housing Associations to buy a 25% share of a property at a discount (60% of open market value) and then sub-let the property to a tenant.
Using shared ownership this means that the cost of delivery of new rented stock could be as low as 15% of open market value
The rent on the unpurchased share is 2.75% rising annually in line with RPI plus 0.75% and like consumer shared ownership the share is mortgageable.
The 125 year Let's Share lease follows the Homes and Communities Agency (HCA) standard form and all of the rights and obligations, including the right to staircase, are present.
However, unlike consumer shared ownership the Local Authority or Housing Association shared owner will be given a blanket consent to sub-let the property to tenants and, subject to any Section 106 requirements, Local Authorities and Housing Associations have complete freedom to determine their own lettings.
Plus, If in the future there is a need to raise funds then the Local Authority or Housing Association can sell their share (realising the capital investment plus the discount and any house price inflation) whilst maintaining affordable housing delivery in the form of normal consumer shared ownership.
Let's Share in action...
A development has a Section 106 planning requirement for 20 rented affordable properties.
heylo will sign a forwards purchase contract with the developer to acquire all 20 rented properties at practical completion and sign a Let's Share agreement with the Local Authority or Housing Association to buy shares in the properties once acquired by heylo.
At practical completion heylo will simultaneously:
- Acquire the properties from the Developer for 60% of the open market value of the unpurchased shares
- Sell the shares to the Local Authority (in their general account) or a local Housing Association for 60% of OMV and pass the proceeds to the Developer
- Consent to sub-letting of all 20 properties subject to any Section 106 and nomination obligations
The purchasing Local Authority or Housing Association can specify design and fit requirements at the point of signing the Let's Share contract and these will be incorporated into the agreement with the Developer provided that they would not impede the sale of the properties as shared ownership to consumers.
The Local Authority or Housing Association will be obliged to comply with any related Section 106 requirements, such as rent caps or nominations, but is otherwise free to determine the occupancy of the Let's Share properties, set the term of the sub-lettings, set the rent levels (on a property by property basis), manage the lettings as if the properties were fully owned and undertake maintenance of the properties.
(Should the Local Authority wish to outsource this activity heylo is happy to provide some or all of these services on an "open book" cost basis.)
Single property worked example...
The open market value (OMV) of a Section 106 rented property is £125,000.
Each 25% share purchased by the Local Authority or Housing Association at 60% of OMV is £18,750.
The initial rent on each property under the Let's Share shared ownership lease is 2.75% x 75% x £125,000 = £2,578.13
(Increasing by RPI plus 0.75% annually)
Estimating annual management and maintenance costs per property of £2,400 (this should be much less in early years due to being new build) means that the Local Authority or Housing Association will need to generate annual sub-letting income of £4,978.13 to 'break even'.
This means the Local Authority or Housing Association could obtain this £125,000 property for £18,750 and rent it to a tenant for £95.74 per week.
Development worked example...
The total purchase price of 25% shares in 40 Let's Share properties with 125,000 OMVs is £750,000.
The total initial monthly rent payment due to heylo under the 40 Let's Share leases is £8,594.
The Developer receives the share sale proceeds and heylo pays 60% of the OMV of the residuals = £750,000 plus 60% x 75% x £125,000 x 40 = £3,000,000.
(Equivalent to 60% of the £5,000,000 OMV of the 40 properties.)
Capital Investment and Break Even Weekly Rents
for different Property Open Market Values...
The table below shows the Capital Investment per property and break even weekly rent based on a 25% share purchase.
This includes £2,400 additional annual management and maintenance on-costs to the Local Authority or Housing Association and the capital cost of the share being funded at a cost of 5%.
(Clearly given these are new build properties the maintenance on-cost will be much lower in the early years.)
Balance Sheet and revenue impact...
The 25% share acquired is like any other shared ownership property interest, however, given the acquisition price of 60% of OMV there is an immediate embedded value uplift based on an easily ascertainable valuation.
Just like customer focussed shared ownership, where mainstream banks provide mortgage finance, the share itself is a readily chargeable asset.
Unlike other volume based solutions, the fact that each property is subject to it's own lease makes future asset management decisions significantly easier.
Additionally, you have the ability to sell one or more of the shares in the future - hopefully to sitting tenants - releasing the original capital investment and crystalising the value uplift (together with any house price inflation) whilst maintaining the property as affordable housing in the form of shared ownership.
Let's Share has been designed to generate an operating surplus based on typical Local Housing Allowances for family housing in the majority of the country.
The sub-letting agreement from heylo gives you full control over letting strategy and pricing - ensuring that you can balance and review lettings to meet ever changing local housing needs and fiscal priorities.
The Prospect of Free Rented Affordable Housing in the future...
Too good to be true? Not really when you think about it...
Given your are investing 1/4 in each property but each one has an immediate, embedded 40% surplus, if you start to sell some of your shares over time these surpluses, with or without any house price inflation, will eventually repay your original investment and the remaining properties will be yours - for FREE.
Here's an example based on £200,000 OMV properties and £3m of capital...
Year 1 you buy 25% shares, at 60% of OMV, in 100 properties and invest £3m.
You rent out all 100 properties at average weekly rent levels at or around the Local Housing Allowance to 'break even'.
After 5 years you begin to sell your 25% shares in 3 properties every year (to the tenants or to people on Shared Ownership waiting lists).
Each property sale, excluding any house price inflation, releases the original £30,000 of capital plus a surplus of £20,000.
Each year these 3 share sales reduce your original investment by £150,000.
After 20 years of sales you will have repaid all of your original £3m investment AND still have shares in 40 properties left to rent as affordable housing.