DATE OF REPORT:- 28 th May 2009
REPORT TO THE HOUSING MINISTER
JERSEY HOMEBUY – PROPOSED PURCHASE AND ONWARD SALE OF 46 JERSEY HOMEBUY HOMES AT LA PROVIDENCE, ST LAWRENCE
BACKGROUND
On 10th July 2008 the States approved P74.2008 amending Policy H1 of the Island Plan to allow the re-categorisation of the category A homes set aside for social rented occupation on the remaining H2 sites as ‘Intermediate Housing’. This was defined as ‘housing where the purchaser buys the whole property, but initially pays only such part of the first time buyer housing value as may be determined by the Minister for Planning and Environment. The legal arrangements regulating the unpaid balance of the full value must be approved by the Minister for Housing and the property must remain in the first time buyer market in perpetuity.’ The resultant approved scheme was called ‘Jersey Homebuy’ due to its overriding similarity with the Homebuy Schemes which run so successfully in the UK.
The key features of the scheme are set out in P74.2008 and additional guidance on operating the scheme was given by a political steering group formed by the Minister for Planning and Environment and ultimately by the Health, Social Security and Housing Scrutiny Sub-Panel.
In essence the scheme and the subsequent guidance require that the developer of Jersey Homebuy homes sell the completed homes to an approved Not for Profit Body (NPB) at less than the first time buyer value of the homes. The NPB then sells the homes for the same price as it acquired them to qualifying first time buyers. A second charge is taken on the property by the NPB for the difference between the value at which the homes are sold and the first time buyer market level. This second charge is repaid when the home is next conveyed.
NOT FOR PROFIT BODIES
The Loi (1862) sur les teneures en fidéicommis et l’incorporation d’associations, as amended has been identified as the most appropriate existing means of establishing Not for Profit Bodies, (NPB’s) in order to carry on Homebuy.
A number of existing organisations are already established in accordance with this legislation and could, on application to the Housing Minister, be considered as suitable to become a Homebuy NPB.
It has been agreed that the NPB for the purpose of the remaining H2 sites should be either:-
The Public (the Housing Department); or
An existing Housing Trust incorporated under The Loi (1862) sur les teneures en fidéicommis et l’incorporation d’associations, as amended (the constitution of the Trust would need to be amended); or
A Parish
All not for profit bodies must demonstrate that all redemption funds received would be put into a separate ring fenced account and set aside only for the purpose of providing affordable housing.
In respect of the La Providence site the NPB is to be the Public of the Island under the auspices of the Housing Department.
ELIGIBILITY FOR THE SCHEME
The ‘Gateway’ is the means test through which all prospective purchasers must pass. This Gateway is operated by the Housing Department alongside its existing means testing processes for social rented housing.
In respect of the 3 bedroom Houses at la Providence applicants must satisfy the following criteria:-
Be the parent of one or more dependant children ordinarily resident with the parent (this can include a child in full time education elsewhere where it can be shown that the child is ordinarily resident with that parent)
Be a bone fide First Time Buyer (this can include previous owners of share transfer property and where flying freehold property, in the latter circumstance only where it can be demonstrated that the property has been sold on to another first time buyer)
Have no less than £40,000 and no more that £60,000 gross (joint where applicable) income
There are 69 qualifying applicants for the 46 available homes at La Providence.
ALLOCATION PROCESS
In line with the allocation process agreed by the Scrutiny Sub-panel a lottery was held on 30th April 2009; this was carried out by the Deputy Greffier of the States.
Applicants were drawn and recorded in the numerical order in which they were drawn. Applicants have all been interviewed to ensure that all information provided is accurate and that the necessary due diligence checks are performed.
These checks include:-
- Identification check
- Confirmation of family composition
- Confirmation of earnings
A Housing Consent is required for each purchase by a qualifying person and confirmation of bone fide First Time Buyer status is provided by the Population Office as part of the process of issuing a consent.
Allocations are underway on site in partnership with the developer. This process takes place in the order that applicants were drawn in the lottery, therefore the applicant at position 1 has the choice of all the homes available, the second applicant drawn the choice of the 45 remaining and so on.
SALE PROCESS
The advice of the Law Officers’ Department was sought in respect of how best to process the sales. The advice of the previous Solicitor General was most specific in respect of how transactions must be carried out if the NPB is to ensure that the second charge is properly securitised in favour of the NPB and not open to challenge at a future time. This advice ruled out the option of the developer of the site selling direct to qualifying persons.
The process which has been agreed as being robust is that the Homebuy homes will be bought by the NPB and sold to the eventual homeowner on the same day. Each property will be acquired by the NPB on an individual basis, each with its own explicit contract and distinct financial transaction. The effect of recent amendments to the States Business Plan was to make the acquisition of Homebuy homes by the Public acting as the NPB and ultimately qualifying buyers exempt from Stamp Duty.
The transactions will be structured so that at any one time the NPB owns no more than 1 Homebuy home. In addition, the final list of units to be bought and sold by the NPB on any given day will not be confirmed till the date of passing contract and can be subject to change without notice in the event that a Homebuy applicant drops out or experiences difficulties in passing contract on that particular day. Should that happen, the purchase of that particular unit by the NPB will be delayed until arrangements can be made to buy and sell the unit on the same day. This is to avoid the circumstance where a buyer drops out at the last minute and the NPB is then financially liable for a Homebuy unit.
LA PROVIDENCE
The La Providence site has been developed by Dandara Jersey Limited and comprises of 102 homes, 46 of which are categorised for Jersey Homebuy. All 46 homes are 3 bedroom houses.
AFFORDABILITY
A cross section of the house types on the site have been valued by a firm of local surveyors and valuers, in accordance with the valuation principles set out in the Planning Obligation Agreement and following the process recommended by the Jersey Homebuy Working Party. The homes have been assessed as having first time buyer market values of between £435,000 and £465,000.
When the Homebuy scheme was approved it was anticipated that to make homes affordable a 35% deferred payment would be appropriate on these initial sites. In the future the scheme did set out that the level of deferred payment would be set on a site by site basis. However, we are now in very different, almost unprecedented economic times. One consequence of these times has been a significant tightening of lending criteria which has significantly reduced the availability of funding and lenders are now being more prudent in the multiples of income which they are willing to advance. In practice 5 times joint income is now very much the upper limit where 12 months ago higher multiples were quite common.
Applying a 35% deferred payment to the values of the homes at La Providence brings down the acquisition price to between £282,750 and £302,250 per unit. These prices take purchase out of the reach of the majority of those persons qualifying through the gateway. Essentially on 5 times income criteria buyers would need to have incomes of at least £56,500 per annum. This sea change in affordability has been the subject of extensive discussion with the developer who has been willing to increase the level of deferred payment across the site to a level where homes become affordable for a significant proportion of qualifying persons. This has resulted in the pricing of homes in 3 groups, £255,000, £260,000 and £265,000. These prices represent between 40 and 44% deferred payment on the first time buyer values. A schedule of the 46 Jersey Homebuy homes at La Providence, the first time buyer values, deferred sale prices and deferred payment discount is attached at annex a hereto.
The total first time buyer value of the homes at La Providence is some £20.5m. It is proposed that, taking into account the 40-44% deferred payments, the Public acting as the NPB for the scheme will acquire the homes for £12.005m and will sell the homes to qualifying persons for the same prices. The Public will register second charges against each property which will total £8.53m. These second charges are similar in all respects to the 2nd charges registered on those properties sold to States Tenants under the provisions of the Social Housing Property Plan 2007 – 2016 (P6.2007). This requires that upon the next conveyance the vendor repay to the NPB the percentage of the onward sale price equal to the percentage of the first time buyer value granted initially. Or instance if a buyer buys a home for £400,000 with a 40% deferred payment he will pay £240,000. When he sells say for £450,000 he will be required to pay the Public £180,000 being 40% of the onward sale price.
The £8.9m value of the second charges will be reflected on the Housing Department’s balance sheet as long term assets.
The income from repaid 2nd charges will be held in a specially created fund the use of which will be limited to the provision of additional affordable housing. This fund will not be created until such time as the first of the 2nd charges is redeemed.
RECOMMENDATIONS
That the Minister:-
- Agree to the acquisition on an individual basis of the Jersey Homebuy properties set out in the schedule attached at annex a, from Bel Royal (Jersey) Limited. The total consideration to be paid for all 46 homes being £12,005,000.
- Agree to the sale on an individual basis of the Jersey Homebuy properties set out in the schedule attached at annex a, to person or persons approved through the affordable housing gateway as eligible for the scheme at prices as set out in the schedule which overall will total £12,005,000 with a further £8.53m in total being registered as second charges in favour of the Public against the 46 homes, as set out in the schedule.
- Request that the Minister for Treasury & Resources accept his recommendation for the transactions in accordance with the provisions of Standing Order 168 and authorise the Greffier and Attorney General to sign the necessary contracts on behalf of the Public.
Report Drafted By: ______________________________ Date
Director of Estate Services
Report Approved By: _____________________________ Date
Chief Officer
gov.je