Project 2 – Financial Feasibility Study

Financial viability depends heavily on the opinion of a partner Housing Association, with which, in July 2020, we were still in discussion. Standing behind all financial decisions is Homes England, whose funding usually covers more than half the capital costs.

Funding for many government departments is under review in the lead-up to the September 2020 Spending Review. However, ECLT is pursuing Project Two in the widely-held belief that shovel-ready projects are always popular with government. The £72,000 grant we already have from Homes England, just for Feasibility, also speaks favourably.

Mix of Housing Types and Proportion of Shared Ownership to Rented

For the Technical Feasibility, a constant mix of 10 Shared Ownership and 20 Rented homes (all Affordable) has been studied. This is closely based on the 2019 Housing Needs Survey and is broken down as follows:

House Type              Total                   Rented              Shared Ownership

2-bed houses               8                             6                                2

3-bed houses               4                              –                                4

2-bed bungalow           1                              –                                1

1-bed bungalow           5                              4                               1

1-bed flat                    12                            10                               2

Totals                         30                            20                             10 

Note: The number of Shared Ownership homes is lower than the 2019 HNS suggested, due to economic uncertainty from Covid-19. This can still be adjusted during the full planning application process.

How Shared Ownership works

Basically, a tenant buys a share (say 40%) of a house and pays rent on the remainder. The bought share is paid for by a deposit and a mortgage, just like buying a whole house.

More shares in the house can be bought at a later date e.g. another 20%, which of course reduces the rent by that proportion. This is called “staircasing” and there will be rules like how often that can happen and what the minimum amount might be.

Buying and selling are administered by “Help to Buy South”, a government sponsored body, similar in many ways to Homeseeker Plus for rented properties.

A special condition will apply once a tenant has staircased up to 100% ownership (zero rent). If at any time the owner wishes to sell and move away, the property must be sold back to the Housing Association. This has several benign effects:

  • it will be much easier to keep the house tied into ECLT’s local connection criteria
  • a sale at 100% ownership will be reasonably quick
  • the presence of this guaranteed buy-back will be more attractive to mortgage suppliers
  • the Housing Association will then put the house back on the market at a lower, more affordable price e.g. 40% again

All sales must comply with ECLT’s local connection rules, which will be recorded in the Section 106 between ECLT, Stroud DC and our Housing Association partner in the same way that the rules are recorded for Fullers Close.

There are various rules about affordability to be understood, a tenant is responsible for all repair costs even when paying rent on a share and a few other things. Our Housing Association partner will conduct interviews early in the planning process to explain such things and explore whether Shared Ownership is a good or bad option, having considered a person’s income and circumstances.

More to follow upon selection of Housing Association partner