Re-invest 'high value' sales and RTB receipts immediately and replace lost affordable housing for rent
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 replace lost rented affordable housing with limited amounts of capital to invest.
Available on second-hand properties across the country, Let's Share allows Local Authorities and Housing Associations to buy a share of an existing home and then sub-let the property to a tenant - reducing the amount of capital investment required, increasing the availability of properties for rent and helping to reduce temporary housing budgets.
How does it work?
Local Authorities and Housing Associations subsidise a 20% discount on the value of the property to be acquired, to make it affordable for rent, and acquire a 10% share based on the full OMV.
This subsidy is embedded in the landlords share to make the shared ownership lease rental payments affordable and is recycled or returned to the Local Authority or Housing Association should the property ever 'staircase' to 100%.
The Local Authority or Housing Association owns 10% of the property, pays an inflation linked rent on the unpurchased share.
Using shared ownership this means that with a capital investment of 30% of open market value Local Authorities and Housing Associations could immediately deliver new rented stock via the purchase of second-hand properties.
The rent on the unpurchased share starts at 3.65% (increasing annually in line with RPI plus 0.75%).
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 with complete freedom to determine their own lettings (including rent levels and letting terms).
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 and any house price inflation) whilst maintaining affordable housing delivery in the form of normal consumer shared ownership.
Let's Share in action...
A Local Authority or Housing Association has £1.8m of capital to invest in affordable rented delivery, however, there are currently no opportunities for it to acquire New Build properties for rent using Let's Share.
Given Second-Hand property values of 3 bed homes in the area are £200,000, the Local Authority or Housing Association could invest 30% per property, £60,000 per unit, (to fund a 20% discount via a £40,000 subsidy and acquire a 10% share) in 30 properties.
The Local Authority or Housing Association identifies the second-hand properties it wishes to acquire, and has them professionally valued (to establish OMV).
The Local Authority or Housing Association then agrees to provide a subsidy equivalent to 20% of OMV and acquire a 10% share (for 10% of OMV), heylo agrees to acquire the property and grant a shared ownership lease as well as the agreement for sub-letting.
At completion heylo simultaneously acquires the property (using it's own funding and the 20% provided by the Local Authority or Housing Association) and grants the shared ownership lease (selling the Local Authority or Housing Association a 10% share).
The purchasing Local Authority or Housing Association acquire almost any second-hand family sized home (typically this will be a freehold house).
Whilst leasehold properties with leases longer than 125 years can be accommodated these require additional legal work that the Local Authority or Housing Association would be required to pay for.
The most important aspects are that the home is habitable and the share could easily be sold to consumers if required in the future.
The Local Authority or Housing Association is 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 or Housing Association wish to outsource this activity heylo has partners who will be happy to assist on a transparent cost basis.)
Single property worked example...
The open market value (OMV) of a target second-hand property is £200,000.
Each 10% share purchased by the Local Authority or Housing Association at 30% of OMV is £60,000.
The initial rent per annum on each property under the Let's Share shared ownership lease is 3.65% x 90% x £200,000 = £6,570.00
(Increasing by RPI plus 0.75% annually)
This is a monthly shared ownership lease payment of £547.50 (equivalent to £126.35 per week).
Estimating annual management and maintenance costs per property of £2,400 means that the Local Authority or Housing Association will need to generate annual sub-letting income of £8,970.00 to 'break even'.
This means the Local Authority or Housing Association could obtain this £200,000 property for £60,000 and rent it out.
If all the lettings on similar £200,000 properties acquired using Let's Share generated an average rent level of £172.50 per week then the Local Authority or Housing Association would 'break even'.
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 range of second hand property values.
This includes £2,400 additional annual management and maintenance on-costs to the Local Authority or Housing Association.