Mutual Home Ownership

1. Mutual Home Ownership Making it happen Steve Bendle– Community Land and Finance

2. Identifying site • Same issues as for any new organisation with no track record • Finding suitable site in right location at right price • Securing site • No finance without planning • No planning without pre-development finance • CLT Fund solution • Need to keep MHO members engaged despite delays • Local authority may offer to sell land, and may even offer helpful payment terms • MHO could be component of larger scheme (?affordable housing requirement) • CLT Fund will provide pre-development loans, repayable +25% of scheme proceeds

3. Development finance • Lack of track record for new organisation • Need for additional security in development period to provide 150% cover (i.e. loan is 67% value of what’s complete) • Need to be able to buy land without undue delay • Charity Bank and Triodos both willing to fund • Delaying land payment can be solution • Deposits and capital investments may also increase margin • HCA grant creates security margin: might also be persuaded to lend?

4. Long term finance £ Rent Breakeven Mortgage payments • Conventional repayment loan undervalues rising rent stream, limiting funds that can be raised • Indexed or partly-indexed funds only available on large scale to established bodies (e.g. water companies) • Loan periods above 25 years difficult to obtain • No solution yet: have to finance conventionally Time (years)

5. Rent levels • With no subsidy, scheme costs of, say, £150,000 for 3-bed house mean rent of £250pw which is probably unaffordable • May exceed Local Housing Allowance • Have sufficient mix of low to quite high incomes (MHO model has rent related to income) • Long shots: • Secure HCA grant to cut borrowing • Find low cost indexed funding • Find innovative low cost eco-build method • Get free land through s106 agreement • Get local authority to invest land as repayable equity contribution

6. Marketing/allocating • Not widely understood • Local authority/HCA priority of those in greatest housing need but referrals have to be those willing to accept MHO terms • Have clear information leaflet • Pre-market • Assemble group • Present to local authority to secure their support

7. Re-finance • Rate of turnover, change in member incomes etc unpredictable: ideally need access to additional capital • Mix of equity investment and loan makes for speedier repayment and earlier “headroom” • Require remaining members to re-invest • Interest only loan for all or part • Loan stock, issued when need arises and repaid when not: with potential investors agreed • Community share issue for same purpose • Set up so surplus from rising rents generates enough income • Obtain some grant

8. Revenue • Rented homes – must set aside funds to renew heating plant, kitchens, bathrooms so early leavers don’t benefit unfairly • With no reserves, cash flow may be an issue • Intention of allowing reduced rent payment when income falls requires robust cash flow to allow 2-5 year shortfalls • Prepare 20 year cash flow • Estimate and factor in main replacement costs • Include contingency in development cost and use any unspent element as reserve to deal with cash flow