MD1638 Delegation of the Help to Buy equity loan programme

Type of decision: 
Mayoral decision
Code: 
MD1638
Date signed: 
31 March 2016
Decision by: 
Boris Johnson MP (past staff), Mayor of London

Executive summary

To ensure consistency in customer experience throughout England, a temporary delegation lasting until 31 March 2016 was given to the Homes and Communities Agency (HCA) under MD1210 to operate the Help to Buy (HtB) equity loan scheme programme on behalf of the GLA. In March 2014, the Government announced further funding to extend the programme to 2020 to support an additional 120,000 homes. This funding was confirmed and increased to £8.6bn in the 2015 Spending Review which also extended the programme to 2021 (to support an additional 25,000 homes). As the scheme end date has now been extended, this MD seeks approval to extend delegation arrangements for the HtB programme to 31 March 2022 and for the management of equity loans post sales (under the HtB programme) to 31 March 2046.

Under MD1335, the administration of equity loan post sales for legacy programmes which transferred to the GLA following passage of the Localism Act 2011 was also delegated to the HCA until 31 July 2016. This decision seeks approval to extend this delegation to 31 March 2021.  

Decision

That under section 38(1) of the Greater London Authority Act 1999 (as amended) (“GLA Act”) the Mayor authorises:

•    The HCA as of the date of this Mayoral Decision to exercise such of the GLA’s powers under sections 30 and 34 of the GLA Act as the HCA considers necessary or expedient for the purposes of undertaking or continuing all or any of the activities specified in the Instrument of Delegations in relation to:

(1)      The Help to Buy equity loan scheme until 31 March 2022 for the operation of the programme and 31 March 2046 for the holding of Help to Buy equity loans (Appendix A); and,

(2)      The administration of equity loan matters relating to interests transferred to the GLA following passage of the Localism Act 2011 until 31 March 2021, including a number of loans not included in the 2012 statutory transfer scheme (Appendix B).  

Part 1: Non-confidential facts and advice

Introduction and background

Help to Buy equity loan scheme 

1.1    The £3.5bn Help to Buy equity loan scheme was announced by the Chancellor of the Exchequer on 20 March 2013. It formed part of a larger package offering greater support to current and potential home-owners.  

1.2    The scheme built on the success of the existing FirstBuy scheme fund with a 20% equity loan to assist in the purchase of a new build property; however, there are a number of key differences from the previous FirstBuy model. They are: 

•    The equity loan is 100% Government funded, with no developer contribution;
•    Eligibility rules have been loosened so existing home-owners can purchase (as long as they sell their other home as part of the purchase), 
•    There is no income cap; and
•    The property price cap has been raised to £600k (from £280k previously).

1.3    The scheme commenced on 2 April 2013 and was initially announced to run until 31 March 2016. In March 2014, Government announced a further £6bn to extend the programme to 2020 to support an additional 120,000 homes. This funding was confirmed and increased in the 2015 Spending Review to £8.6bn for 2016-2021. The Spending Review also extended the programme to 2021 (to support another 25,000 homes) and announced an increased equity loan contribution of 40% for purchases in London from 1 February 2016. 

1.4    Help to Buy is a demand-led product which has been designed to be as stream-lined as possible. This means that the GLA’s scope to operate Help to Buy in a bespoke manner is limited and in any case could cause confusion to consumers. By operating the Help to Buy programme in London the GLA would have incurred additional administrative costs; in contrast, the HCA will operate the delegation at no cost to the GLA. 

1.5    The HCA is operating the scheme in the rest of the country and has accepted the Mayor’s delegation to run the scheme in London until 31 March 2016. In order to ensure consistency for consumers across the whole of England it is proposed that this delegation is extended to cover the full programme life. 

1.6    This decision seeks approval to authorise the HCA to exercise the GLA’s powers under sections 30 and 34 of the GLA Act as the HCA considers necessary or expedient for the purposes of undertaking or continuing all or any of the activities specified in the Instruments of Delegation (attached at Appendix  A) in relation to the Help to Buy equity loan scheme, until 31 March 2022 for the operation of the programme (the additional year after the programme end is to allow for necessary end of programme administration e.g. estimate of accrued legal completions) and until 31 March 2046 for the holding of Help to Buy equity loans.

Administration of equity loan post sales (legacy programmes) delegation

1.7    By virtue of the Localism Act 2011 from 1 April 2012 the HCA's powers to operate in Greater London ended, and from this date the GLA has undertaken the HCA's former role in the capital using its new powers in relation to land and social housing contained in Part 7A of the GLA Act, and its general and subsidiary powers under sections 30 and 34 of that Act, which are exercisable by the Mayor.

1.8    Relevant property, rights, and liabilities of the HCA transferred to the GLA on 1 April 2012 under a statutory transfer scheme made under the Localism Act 2011, this included the equity loan investments in London that were provided to home buyers in Greater London to enable them to access low cost home ownership in the capital. In addition a number of equity loans in Greater London that were not originally included in the 2012 statutory transfer scheme have also been transferred to the GLA and the activities to be delegated by this Mayoral Decision will also apply to those loans. Each recipient of these loans is legally obliged to repay their loan when the property is sold or by the end of the loan agreement term, typically 25 years.

1.9    As part of the GLA's financial settlement, it was agreed with the Department for Communities and Local Government ("DCLG") that, from 1 April 2012, all repayments of equity loans in London and their associated interest fees payable by home buyers under the terms of the loan agreements will be payable to the GLA.

1.10    Through an existing temporary delegation agreed until 31 July 2016 under MD1335, the HCA undertakes and oversees a number of activities in relation to these loans in London. These activities include monitoring and reporting on the performance of the equity loan portfolio, collecting repayments from home buyers of loans granted and associated interest fees, management of equity investments, and contract management of the national service provider appointed to administer the programme. 

1.11    The GLA and the HCA have agreed that, on grounds of efficiency and business continuity, the HCA should continue to undertake its activities in relation to the equity loans in London after the existing delegation expires in July 2016. The Mayor is therefore asked to authorise the HCA to exercise such of the GLA's powers under sections 30 and 34 of the GLA Act accordingly, upon the basis and upon the terms and conditions set out in the Instrument of Delegation attached at Appendix  B to extend the delegation to 31 March 2021.

Objectives and expected outcomes

2.1    As announced by the Government, the Help to Buy: Equity Loan Scheme will now be extended until 2021 to continue to help individuals on lower incomes into home ownership. In addition, and to reflect the current property market in London, from February 2016 the Government has increased the upper limit for the equity loan it gives new buyers within Greater London from 20% to 40%. 

2.2    In the first 30 months (to 30 September 2015), 62,569 properties were bought (legal completions) in England with the support of the Help to Buy: Equity Loan Scheme. Of these, the majority of sales were to first-time buyers (50,969) representing 81% of total sales (DCLG, Open Communities Data, http://opendatacommunities.org/data/housing-market/help-to-buy/num-loans...) . Over the same period, there were 3,548 loans in London of which 95% (3,386) were to first time buyers. With the extension of the programme and improved loan offer, the scheme is expected to help more Londoners who would otherwise struggle to afford a new home. 

2.3    The extension of the maximum equity loan in London addresses the fact that homes in London are significantly more expensive than the rest of the country. There are other changes which could make the scheme more appropriate to the needs of London’s housing market, including but not limited to:

•    Longer gaps between reservation and ‎purchase to reflect high density, longer build time in London;
•    Support of purchase of homes through assignable contracts for same reasons as above;
•    Explicit support for other forms of home ownership (e.g. forms of affordable home ownership not required as part of a wider s106 agreement, built without grant subsidy); 
•    Support for part-exchanges 
•    Allowing Help to Buy to sit as a first charge for older downsizers without mortgages;
•    Exploring changes to the maximum property value cap (currently £600k nationwide)

2.4    HCA and DCLG have committed to working with GLA to implement as many of these as is considered feasible. It is acknowledged that any changes will need the support of main mortgage lenders and house builders, and have due regard for protection of home purchasers, before they can be considered for implementation.  

2.5    Extending the temporary delegation for the HCA to administer equity loan post sales for legacy programmes is expected to ensure business continuity in tracking these investments and receiving returns. 

Equality comments

3.1    The public sector equality duty requires the identification and evaluation of the likely potential impacts, both positive and negative, of this decision on those with protected characteristics (age, disability, gender reassignment, pregnancy and maternity, race, gender, religion or belief, sexual orientation) and to set out how the organisation is addressing the duty. The delegations set out in this decision are not expected to have any impacts on individuals with protected characteristics and the HCA will continue to give consideration to the public sector equality duty in all future decisions made under these delegations. 

Other considerations

a.)    Key Risk

4.1    The HCA will be carrying out the activities and functions specified in the Instrument of Delegations on behalf of the GLA. This means that the GLA is, in law, legally responsible (and potentially liable) in respect of the discharge of these activities and functions. The risks pertaining to the delegation are mitigated by the conditions contained in the delegations and the Mayor’s right to revoke the delegations if required. 

b.)    Links to strategies and Mayoral and corporate priorities

4.2    The programmes delegated in this decision link in with the Mayoral priority to assist working Londoners into affordable and sustainable home ownership and the pledge to boost the First Steps programme by increasing home ownership options for working Londoners. 

c.)    Impact assessments and Consultation

4.3    No consultation has been carried out specifically in relation to this scheme but does build on the consultation carried out in relation to the Mayor’s Housing Covenant: Homes for working Londoners which invited consultation responses up until 19 December 2012. DCLG and the HCA have been consulted in relation to the proposed delegations. 

Financial comments

5.1    There are no financial implications arising from delegating to Homes and Communities Agency (HCA) to operate the Help to Buy (HtB) equity loan scheme programme on behalf of the GLA until until 31 March 2022 for the operation of the programme and 31 March 2046 for the holding of Help to Buy equity loans.

5.2    The GLA will be required to pay a proportion of the HCA’s national contract price per annum towards the administration costs of the equity loan portfolio being managed on the GLA’s behalf. This will be calculated and based upon the GLA’s equity loans as a proportion of the total equity loan portfolio administered by the HCA. Liability for the 2016/17 financial year is envisaged to be in the region of £90k, which will be met from the dedicated ‘Home Buy Agent Fees’ budget within Housing & Land.

5.3    The confirmation of this funding is subject to the finalisation and sign-off of the 2016/17 budget by the Mayor.

5.4    Any changes to above proposal, including continuation beyond the period stated above, must be subject to further approval via the Authority’s decision-making process. 

Investment and Performance Board

7.1    The HtB equity loan scheme delegation does not affect expenditure by the GLA, but aims to facilitate the delivery of the programme. As such it does not need to be considered by the Investment and Performance Board. 

7.2    There is also no change to the cost structure for the administration of equity loan post sales; the GLA will still be required to contribute its proportion of the costs of administering the equity loans through HCA’s national contract. There is no new decision related to costs for IPB to consider. 

Planned delivery approach and next steps

Activity

Timeline

Help to Buy Programme Start Date

20 March 2013

Help to Buy Programme End Date

31 March 2021 (delegation to 31 March 2022 to allow for necessary end of programme administration

Equity loan post sales (legacy programme) management end date

31 March 2021

Help to Buy equity loans management end date

31 March 2046

Appendices and supporting papers

Appendix A – Instrument of delegation – Help to Buy equity loan scheme programme
Appendix B – Instrument of delegation – Administration of equity loan post sales (legacy programmes)