Question time

Who will be eligible?

Criteria are subject to consultation, but the ODPM says that when the Social Homebuy scheme begins in April 2006, 300,000 housing association and local authority tenants will be able to buy a stake in their homes for the first time. These people do not qualify for the current right to buy or acquire.

How many tenants will do it?

Based on previous right to buy figures, the ODPM estimates that 5% of those eligible will apply. Many in the sector are worried that the inherent uncertainty in the scheme – not knowing how many homes will be bought – could make budgeting decisions at the start of a year much more complicated.

How will the discounts be calculated?

This issue is due to be thrashed out over the coming weeks before a document goes out for consultation around the middle of March. National Housing Federation chief executive Jim Coulter says the rate of discounts is “open to discussion”, but adds that they are likely to be based on right to buy, where discounts reflect regional valuations.

Jeff Zitron, director of consultant Tribal HCH, says “there may be regional limits on the discounts regardless of the percentage tenants are allowed to buy”. He adds that limits on the monetary size of the stake may make the scheme less appealing in certain areas. “If you can only buy a sliver of your house in the South-east, for example, it won’t be attractive.”

What will happen to the receipts from sales?

Coulter believes it is vital that there is a local strategy that addresses how funds can best be appropriated. “We need to make sure there is agreement between associations and local authorities as to how the receipts are used,” he says.

“We also need to be clear that the receipts can be spent by housing associations on development – we don’t want clawback [by the Housing Corporation] of grant or surpluses.”

Housing associations may have a time limit in which they will be forced to spend receipts from sales. “The intention is to take a common sense approach – if you sell a home, you need to replace it,” says Ian Graham, head of housing projects at solicitor Trowers & Hamlins.

What happens when a tenant wants to move?

Graham believes the procedure will be based on the right-to-buy initiative. “If the purchaser sells their house within five years, they will have to pay a proportion of the discount back – the government would probably want the equity mortgage back as well.” Tenants who want to move may be hard pressed to get a good price for their stake because they will be selling to a limited number of potential buyers. “The tenant or the landlord has to find someone who will buy the stake, which means the tenant is selling to a very restricted market and this depresses the price,” Zitron says.

What happens if a tenant can no longer afford to own a stake in their home?

This is one of the crucial issues that needs resolving, but solutions are unclear. “There could be a repurchase scheme but that would need funding,” Graham says. “This would not be a guaranteed exit for the tenant as the housing association may not want to buy the property back.”

Zitron feels that some tenants could end up worse off as a result of Social Homebuy. “A tenant could build up mortgage arrears and it could also lead to negative equity.”

How does Social Homebuy affect the right to buy and other homeownership schemes?

Technically, Social Homebuy is pitched at tenants who either don’t qualify or can’t afford right to buy and acquire schemes. Right to buy and right to acquire are set to continue as before.

How will the Housing Corporation and the ODPM enforce the voluntary nature of the scheme?

Intriguingly the scheme is described as being “initially” voluntary – although the ODPM has said that this aspect will be debated in the consultation process. But the ODPM has indicated that it will “encourage” housing associations and councils to apply the scheme as widely as possible. It says allowing associations to keep receipts from sales should be all the encouragement they need.

How will a sufficient supply of social housing be assured to rent if the scheme takes off in the same way as the right to buy?

The ODPM claims that because it will enable councils to reinvest the money in housing, Social Homebuy will also help deliver new homes for homeless households and others in priority need for housing. But at a five-year plan briefing last week, Keith Hill admitted that the government expects the replacement rate to be roughly one unit for every two that is lost through the scheme. Several associations have already indicated that finding land for new homes could be a problem – that problem and corresponding funding queries are likely to form a key part of the consultation.

How will this affect lenders’ confidence in the sector?

“Lenders don’t think Social Homebuy will be a huge phenomenon,” says Piers Williamson, chief executive of social housing lender the Housing Finance Corporation.

Housing associations had feared they might breach the terms of their loans with lenders if tenants bought up large numbers of properties on which their loans were secured. But most associations will have homes that have not been put up as security (and are not being purchased by their tenants), which could act as security instead of those lost through Social Homebuy. The only associations that will find this difficult are those that have almost all of their property pledged as security.

The sales could be a boon for associations in need of cash. The scheme is unlikely to have the devastating effect that right to buy had because the Housing Corporation will foot the bill for the discounts, previously met by councils, and housing associations will keep all of the proceeds of the sales, unlike with right to buy where the government takes some of the cash.

Housing associations could find themselves having to make sizeable payments if the homes have increased in value when they want to buy them back. Buyers may expect their homes to rise in value but a downturn in property prices, combined with the obligation to sell the home back to the housing association, could mean owners make less money than they expect. Whether they can reject a housing association offer remains to be seen. The uncertainty over the rules could worry institutional investors, such as insurance companies and pension funds, which invest in social housing through the capital markets, says Williamson. “My worry is it will take forever to sort out the detail and institutional investors will say, ‘what is this?’ and the uncertainty will kill us. We need the rules to be sorted out early to reassure them.”

Who will pay the extra costs of administrating the scheme?

Again the exact answer to this won’t be known until the consultation process draws to a close but it is believed the Housing Corporation will administer the scheme. Last week Jon Rouse, the corporation’s chief executive, hinted it will get extra funds from the Treasury to cover the new costs.

What do tenants think about it?

The response has been mixed. While some tenant organisations claim it would help redefine the notion of homeownership and break down financial barriers, others are unconvinced. There are concerns that many tenants won’t be able to afford to buy 50% of their home, even with a discount, and that the scheme merely exacerbates the divide between those with money and those without.