In these current uncertain times, sales of all new homes are likely to be difficult to secure. Inevitably Housing Associations will be looking at alternative ways to deal with proposed market sales and shared ownership homes to avoid the risk of empty homes and voids. This may mean a temporary solution or a permanent one.
It is important to identify the restraints on each new home and where it may be necessary to change tenure to discuss and agree with stakeholders such as Homes England, Local Authorities and Developers.
As most Housing Associations are charities, their charitable objective will constrain change as well as the requirements of grant funding, and/or planning and nominations agreements. In addition, there may be contractual restraints imposed when the homes are bought.
Changing tenure will affect many areas, not only value and cashflow, but also management and tax, which could make it difficult to reverse the decision. There may also be VAT issues if a new home is rented rather than sold. It is important to identify the restraints on the homes and then seek to be flexible where you can.
As changing to a rental use is such a fundamental change it is worth looking to see if alternatives can be offered to sell the homes. If the homes are not grant funded then the Capital Funding Guide does not apply. Could an alternative model be used to sell the home? A shared equity approach could be used or perhaps a standard shared ownership approach but with a flexible approach to the specified rent, deferring it or giving a rent free period. (A shared ownership lease will need to be in UK Finance form to be acceptable to lenders). If a decision to rent is made, could you offer it to a buyer who has expressed an interest in buying, if circumstances make it difficult for them to commit to buying at that time and include an agreement to sell in principle on a shared ownership basis?
Where the homes are grant funded then the Capital Funding Guide does set out requirements for an application for changes of tenure. It makes sense to start a conversation with Homes England early to discuss a change of tenure if it is anticipated, especially as the guide requires a minimum of 6 months marketing for a change to be considered. It is to be hoped a good relationship and understanding of challenging times may mean this can be waived in the appropriate circumstances.
It is also worth undertaking a review of any acquisition documents and planning agreements, for example, to see what else might need to be done to give effect to any changes. To buy a new home there needs to be confidence in the value and the buyer’s ability to fund the purchase and this is likely to take a longer time to return than hopefully the current lockdown caused by COVID-19. So, having a flexible approach to the sale of homes is likely to be required for quite some time.