Slough’s property purchase scheme goes beyond the curve

Investment in infrastructure and a buoyant economy have led to an increased pressure on housing in Slough. The council’s answer is a ground breaking scheme to help home buyers by acquiring a share in their new homes. Joseph Holmes describes the new project.

Like many local authorities, we have been looking to diversify our investment activity to ensure we generate a good return to the local taxpayer, and show we are risk aware. Over the past two years, this has been a successful strategy, with average returns of circa 1.5%.

Locally, Slough’s economy has been buoyant, with good job opportunities, new businesses moving to the area and three Crossrail stations due to open in 2019.

The council has also been investing heavily in the borough’s infrastructure, helping to support opportunity – an example being our new Curve building (state of the art library and cultural centre, opening in late summer).

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Inaugural FD’s Summit on housing and infrastructure development finance
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However, all of this has led to an increased pressure on housing, which in turn is dramatically increasing house prices, with the BBC reporting in June 2016 that Slough had the fastest rising house prices in the past year.

Equity element

At the same time, the council has needed, like all others, to find major financial cost base reductions in the coming years.

One way in which we are attempting to deliver against the various policy, financial and local demands is the creation of a Local Authority Property Purchase (LAPP) scheme.

Similar in basis to the shared-ownership schemes of the past, but with the ability for applicants to purchase any property in the borough, the scheme is based on the council having an equity element in properties to help with affordability to applicants.

The scheme, which in its guise we believe is the first of its type in the country, involves the council putting in a 30% element of a property purchase, with the applicants finding the other 70%, as well as contributing 10% of that element as a deposit. We will then charge rent on our 30% element.

The first tranche of funding is being released for ten transactions from applications received in June 2016, but there is funding of £9.3m set aside from the general fund capital programme to fund approximately 100 transactions through this scheme.

The first tranche is limited to ten to begin with so that we can test the criteria. At present, we are weighting the application criteria to: points for being a key-worker, local resident, foster carer etc. We will check on demand for the scheme and the success of the applications at the end of June to decide if we need to revise these.

Skills

We have worked on this scheme with Capita, who have provided legal and accounting support as well as helping with materials that support the scheme that will hopefully assist in future recruitment campaigns as well.

Depending on the level of applications, we will administer this in-house, with our legal team undertaking conveyancing and asset management collection of the rent.

Once applicants are successful in meeting the criteria, they will be signposted to Censeo (who are acting as an independent financial advisor), who will check their ability to afford and obtain a mortgage.

This is important for us as we do not have the means to undertake this work ourselves as it is not an area of expertise for us.

We expect the scheme to be a success for the council and for our residents. In policy terms, this should help in tackling the housing aspirations found in “generation rent”, as well as ensure that local residents are finding support either through the scheme itself, or through the attraction of key workers to deliver local public services.

Risk aware

Financially, the council’s borrowing costs are covered through the rental income, as well as the security of asset. There is also the possibility of capital appreciation, and of course the risk of capital loss.

However, given the current financial climate, we need to be in a position where we are risk aware and take opportunities that benefit the council over the long term to help protect and deliver services for our residents.

It would be a simpler financial calculation to put money in arguably ‘safer’ places and to not spend this money, but our view is that the opportunity this brings to the council in the longer term outweighs the risk.

Joseph Holmes is assistant director of finance at Slough Borough Council.