Agenda Item No.5

 

 

THE VALE OF GLAMORGAN COUNCIL

 

CABINET: 28TH MARCH 2007

 

REFERENCE FROM SCRUTINY COMMITTEE (COMMUNITY WELLBEING AND SAFETY): 12TH MARCH, 2007

 

“            REPORT OF A MEETING - HOUSING SUB-COMMITTEE: 15TH FEBRUARY, 2007 -

 

(e)            Private Sector Property Appreciation Loans (DCS) -

 

Capital allocation to private sector housing renewal had declined and as a consequence, the Council had prioritised its budgets and limited the availability of grant aid to Disabled Facilities Grants and properties in the Penarth Central Renewal Area.  The last renovation grant that was awarded outside these criteria was in July 2003.  Since this time the Council had no mechanism by which to assist vulnerable owners who were struggling to maintain their homes and across the Vale there were many properties falling into disrepair.

 

The Regulatory Reform (Housing Assistance) (England and Wales) Order 2002 enabled local authorities to offer various forms of assistance to their communities to assist housing renewal.  By utilising this legislation the Council could offer loan products to its clients.  To explore this opportunity further and develop a private loan scheme, the Council joined with other South Wales authorities to form the South Wales Loans Consortium.  Ms. Elen Probert, Environmental Health Officer for Cardiff Council, had been joint funded by the local authorities which formed the Consortium, Swansea, Cardiff, Caerphilly, Rhondda Cynon Taff and Torfaen, to consider a number of options to deliver a pilot loan scheme:

 

·        the administration of loans by the Council

·        one local authority providing the service with other local authorities tapping into this expertise

·        working with a third party to administer loans on behalf of the Council.

 

In view of the lack of financial expertise available within the local authorities in the Consortium, the third option had been the preferred choice and the Consortium had been in consultation with ART Home Ltd. 

 

ART Homes Ltd. was a not-for-profit special purpose organisation.  It had been established in 2000 by Aston Reinvestment Trust and was supported by Birmingham City Council.  It had since been taken over by Mercian Housing Association.  The primary purpose of the organisation was to offer financial assistance to low income homeowners who were not able to secure affordable loans on the high street to repair and maintain their property.  ART Homes Ltd. was the only special purpose organisation of this kind offering loan products and services across the UK.  It was currently working with 12 local authorities across the Midlands, Merseyside, Scotland and Wales.  To date the organisation had completed over £4.5 million of loans.  ART Homes Ltd. continue to research the market and develop products suitable for the clients and local authorities it served.  The main product ART Homes Ltd. offered was the Property Appreciation Loan (PAL). 

 

Working with ART Homes Ltd. had several advantages over the other options which included the following:

 

·        The offering of financial assistance was regulated by the Financial Standards Agency (the FSA).  ART Homes Ltd. had FSA approval.  This approval not only acted to protect the client’s financial well-being but also offered protections, and reduced the risks, to the Council’s reputation from mis-selling and maladministration.

·        The area of lending being considered was specialised.  ART Homes Ltd. had expertise in this area having developed products to specifically meet the needs of the client base.  Working in partnership with ART Homes Ltd. would enable the Council to utilise this expertise and again reduce the risks of mis-selling and maladministration.

·        ART Homes Ltd. worked with several local authorities and had been doing so for over 5 years.  This had enabled the organisation to gain experience working with local authorities, their process, procedures and rules.  This experience would enhance the partnership working relationship between the Council and ART Homes Ltd. to the benefit of the service provided to clients.

 

The PAL was basically a mortgage and would only be available to households on a low income who were not able to access funding from high street lenders.  The PAL enabled the client to borrow the free equity they held in their home.  The client’s property was valued and the amount they could borrow was calculated.  When the loan was offered to the client it was secured as a percentage of the property’s value as a registered charge.  The loan had no monthly repayments and relied upon the exchange of the property’s ownership for repayment.  The interest the loan gathered was not based on a standard interest rate, or APR, but was based upon the increase in value of the house.  The loan could only be used to finance work to repair and maintain the client’s property.  However, it could also support the Disabled Facilities Grant by financing the cost of works above the mandatory grant of £30k., client contributions and discretionary works.

 

The sustainable scheme would require Council funding from the Consortium.  Each member would need to give money to ART Homes Ltd. as a grant who in turn would ring fence that funding as a loan fund for that particular local authority.  When loans were recovered the money would be returned to the original loan fund for re-use in offering assistance to further clients in that local authority’s area.  It was through this recycling that the burden on a local authority’s capital resources would be reduced.  However, because this recycling relied upon property sale and house price rises, at present no estimation could be given about the timescales involved to model the impact of recycling.  A capital bid of £50,000 had been made through the Council’s bidding process to enable loans to be offered across the Vale. 

 

In addition to capital funding the local scheme would require revenue funding.  ARTS Homes Ltd. would offer their services in a pilot for a fixed cost.  This cost would include the cost of development, set up fees and the administration of a set number of loan referrals.  The number of loan referrals would be calculated from the grant given to ART Homes Ltd. and the estimated average cost of a loan. 

 

In addition to ART Homes Ltd. contract there would be additional revenue costs to both the Council and the client.  For the clients ART Homes Ltd. charge for the property’s valuation and solicitors fees.  These fees would be approximately £400/£500 per application.  It was the local authority’s discretion as to whether the fees were added to the loan or the local authority paid them as a grant.  In the Vale it was likely that it would be recommended that the fees be included in the loan. 

 

The Welsh Assembly Government were seeking to contribute 25% of the resources the Council would be committing to the two year pilot scheme.  A survey by one of the members of the Consortium found that 30.3% of owner occupiers would be prepared to release equity from their home under certain circumstances and 11% of owner occupiers stated that they would be prepared to use equity release under all circumstances.  Results showed households living in older dwellings were more willing to use equity to fund repairs.  Loan parents or households with children were more willing to use equity schemes whilst pensioners were less willing. 

 

RECOMMENDED -

 

(1)       T H A T the Scrutiny Committee (Community Wellbeing and Safety) be requested to recommend to Cabinet that the concept of Private Sector Property Appreciation Loans be supported and capital funding be considered by the Budget Working Group.

 

(2)       T H A T Ms. Elen Probert be thanked for her attendance at the meeting to update Members on the Property Appreciation Loans pilot project.

 

Reason for recommendation

 

(1) In order to pilot the Property Appreciation Loan to the most vulnerable homeowners throughout the Vale of Glamorgan.

 

___________________

 

Having considered the report the Scrutiny Committee (Community Wellbeing and Safety)

 

RECOMMENDED -

 

(1)       T H A T the report be accepted.

 

(2)       T H A T in respect of Minute (e) recommendation (1) - Private Sector Property Appreciation Loans -  Cabinet be recommended to support the concept of Private Sector Property Appreciation Loans and Capital Funding be considered by the Budget Working Group.”