Section: Right to Buy
The Risk of The Right to Buy
Posted 20.04.15
This thought-provoking article has been submitted by Croftons Solicitors.
With Right to Buy (RTB) discussions at the forefront of political debates, Croftons look at the implications of RTB proposals for RPs and their customers.
Any wholescale RTB propositions should be fully analysed and costed out. There will be implications on social housing assets, as well as home ownership generally and the community at large.
Consider the following:
- RPs which are also charities (this would be the case in the majority) cannot sell properties on the RTB; how is it proposed that this proposed RTB right overrides charity law provisions that charities must dispose of assets at market value?
- The HCA expects that RPs get the best return on any disposal of their assets and achieves value for money; any disposals would need to be taken account of in the business plan and be shown to be in the best interests of the RP, which in the case of the proposed RTB sales may not be but RPs may not have a choice if this is imposed under new or amended legislation.
- RPs are under an obligation to protect social housing assets under the new regulatory framework, more now than ever - how does this fit with selling assets off at a reduced rate and the added risk that after the discount repayment period ends the assets are then subsumed into the private sector.
- This proposal is potentially something that RPs would have little or no control over in relation to current business plans, such as for stock rationalisation and would need to build such RTB sales into their HCA risk assessment and stress testing procedures.
- There is the potential of course that RPs could use the sale proceeds to develop new properties, but with the discount, how likely is it that it will be one for one? The figures for one for one development using RTB sales proceeds for local authorities show that this has not achieved the expected level of success.
- RPs would need to check whether any big changes in business plans (ie loss of rental income and secured assets) would breach loan covenants or reduce their capability to repay loans, increase length of time to repay, or the date of peak debt or have the consequence of lenders amending terms etc.
- It is not clear whether it is intended that the current RTA would be scrapped and replaced with the proposed RTB? If this is the intention then arguably RTA tenants would be likely to challenge this due to the difference in discount levels.
- A question would need to be asked as to how this would sit with s106 agreements which contain affordable housing provisions - if they are essentially only limited to the build period, would they then be considered as market properties (even if the tenant cannot afford to pay) and if a tenant can afford to buy as soon as (or shortly thereafter) they move in, how does this affect those people having been classed as charitable beneficiaries because whilst they could not afford to rent or buy on the open market suddenly they are able to buy because of the discount.
- What is the likely effect on waiting lists for social housing tenants? It would seem reasonable to assume an increase in the number of people on waiting lists and potentially decreased assets in which to house those people.
- The RTB suggestion, whilst getting people on the home ownership ladder, does not deal with the ongoing cost of home ownership which can be expensive and could lead to an increase in mortgage repossessions across the country and therefore affect the housing and lending markets more generally.
This would appear to be a potential, complicated, minefield with far reaching implications.
Is the RTB soapbox an electioneering idea or a thought-out proposal? While, on the surface, it might be seen to be helping home ownership, it would inevitably have a much wider impact on housing in the UK. Do the benefits outweigh the risks or the risk outweigh the benefits? Who benefits - just the home owners?
Whilst everyone should arguably have the right to rent or buy a home, perhaps there are other ways to address issues such as house prices and the development of more housing, rather than potentially eroding valuable social housing assets.
In summary, the upshot of the electioneering proposals could be that everyone can own their own home, but at what cost to the sector and its future health? We look forward to further proposals.
