THE BAY G OFFER
“We are likely to know more after the Autumn Statement, but know one thing expect to hear a lot more about “Buy as you Go” especially away from the fruit aisle!”
Buy as you Go isn’t the latest supermarket offering dreamed up by a swanky advertisement agency, but potentially a revolutionary route to home ownership at the forefront of National Housing Federation (NHF) lobbying.
“Notably it is being argued by some as a workable solution to the current Starter Homes impasse.”
Targeted at ‘Generation Rent’ who are unable to save for a deposit and/or earn insufficient incomes to obtain a suitable mortgage, exact details are very limited.
The current basic idea (correct as at 16th November) is as follows:
- A tenant will rent a property from a Housing Association under Buy as you Go. Importantly there will be no upfront purchase deposit.
- The tenant will be charged a monthly payment set at broadly 90℅ of local market rent. It is currently unclear whether this 90% figure will be inclusive of service charge, as with the Affordable Rent model.
- The monthly payment would consist of two parts:
- Firstly a rental payment. This will be payable on any part of the Buy as you Go property that the Housing Association would own and would be broadly similar to specified rent used for Shared Ownership.
- A capital payment.
- With each capital payment made, the tenant would gradually own more and more equity in the property over time. Just like a repayment mortgage, as capital is paid off the amount of the monthly payment apportioned as rent will reduce.
- Buy as you Go is designed over a 25 year term
- As with Shared Ownership the tenant will be responsible for their repair costs.
The concept is not new, way back in 2010 Policy Exchange proposed something remarkably similar in their now long forgotten Making Housing Affordable Report.
Whilst Policy Exchange’s “Path to Ownership” model will not provide a definitive insight into what can be expected with Buy as you Go, it does provide some possibilities and should not be discounted.
Notably under their model Policy Exchange did not envisage upfront government funding, but instead argued that property acquisitions could be self-financed by Housing Associations and Local Authorities privately via bond finance.
Policy Exchange anticipated that social rents for each “Path to Ownership” property could be charged at circa 3.5℅ of property values, which it anticipated to be sufficient to cover the interest payable on the bond repayments.
Any amounts over this would be charged as capital repayments. In effect a Local Authority or Housing Association would take out a mortgage but this would gradually be paid off by their tenants who would take the benefit. Effectively the tenant would be repaying a mortgage in all but their name
Unlike Buy as you Go however Policy Exchange recommended that tenants did not undertake their own repairs, which it estimated to cost at £2,000 per property.
The devil will very much be in the detail for Buy as you Go, but if NHF confidence is correct, we can expect to see formal government support in the Autumn Statement or White Paper later this month.
It remains to be seen how Buy as you Go would be financed, and if indeed whether this does require an element of government funding.
Certainly if (as with Policy Exchange’s model) there is the potential to fund Buy as you Go privately, it is certainly something Housing Associations may wish to consider to avoid Capital Grant restrictions.
Questions also remain how Housing Associations would record tenant ownership levels as a legal record would be required and who would take the benefit of a rising market.
Additionally there is a possibility for consumer credit licences being required dependent on how the model is structured. Housing Associations will be keen to avoid debt on their books.
We are likely to know more after the Autumn Statement on Wednesday 23 November 2016, but know one thing expect to hear a lot more about “Buy as you Go” especially away from the fruit aisle!