Agenda item

Priority Worker Help to Buy Scheme

The report is attached.


Rob Powell (Strategic Director for Resources) introduced the report which provided an outline of the concept to establish a Warwickshire Priority Worker Help to Buy (PWHTB) scheme which could be offered for new-build properties built by Warwickshire Property and Development Group (WPDG) on selected sites. The Committee’s recommendations would be progressed to Cabinet ahead of its meeting on 14 October 2021.


Rob Powell advised that the proposed scheme supported the Council’s Recovery Plan objective 7.8: “Working in partnership with Homes England, we will remove the blocks that have prevented some sites in Warwickshire from being developed, providing more and affordable housing whilst also supporting the recovery of our local economy.” He stated that this provided a clear policy context for the introduction of the PWHTB scheme.


Rob Powell advised that the scheme was designed to encourage homeownership and support priority workers with affordable homes. Consequently, it would seek to address recruitment and retention challenges in key areas of the economy, providing a means to attract and retain priority workers in Warwickshire. He stated that, with effective targeting, the scheme would support levelling-up objectives.


Rob Powell stated that the PWHTB scheme constituted an attractive product for prospective homeowners. It offered high loan to value mortgages, lower deposits, and would be available to eligible applicants irrespective of whether they were first time buyers. The criteria were less restrictive than national schemes; it would be attuned to local market considerations.


Rob Powell advised that the scheme would apply exclusively to new build properties built by WPDG and must be the homeowner’s only home. The scheme would not apply to all WPDG developments, a decision would be taken on a site-by-site basis as to whether PWHTB properties could be made available. He stated that financial considerations would limit the extent to which the scheme could be offered. WPDG would assess each site when developing a business plan to ascertain whether availability of help-to-buy homes would support sales and delivery of policy objectives. The Council would then review financial risks and make a site-specific value for money assessment. He stated that a robust decision-making framework would support targeted implementation of the scheme.


Rob Powell reported that the proposal was for the definition of what constituted a ‘priority worker’ to be decided on a site-by-site basis. This enabled flexibility, allowing the scheme to be tailored to and targeted to address local market requirements.


Rob Powell advised that an eligibility cap would be set. This would be based upon household income. A separate maximum price cap would also be set on a site-by-site basis in recognition of the variance in housing markets across Warwickshire.


Rob Powell reported that the PWHTB product was an equity-based loan, meaning that WCC would, in effect, take a share of the property. This tied the loan to the current house value, so if house prices fell, the loan would reduce in value. If house prices increased, the value of the loan would rise proportionately. He advised that an interest-free equity loan was proposed for a duration of five years. At the end of the five years, the buyer would either re-finance, or allow the loan to convert to an interest-bearing loan. The interest rate would be set at a rate to incentivise re-financing, mitigating the financial risk to WCC.


Rob Powell advised that WPDG would receive 75% of the sale value. This was a reason for taking a selective approach to the introduction of the scheme, as it would entail deferral of 25% of the overall receipt, delaying some of the contributions to WPDG’s dividends. It would be necessary to assess the ongoing implications of this arrangement to ensure that WPDG could continue to resource its contribution to the Medium Term Financial Strategy (MTFS).


Rob Powell reported that, if house prices continued to rise, the Authority would benefit from 25% of the change in market value. However, it would also be exposed to the risk of a fall in market values. It was important to note that this was a second charge; the first charge would be with the mortgage company.


Changes in value would need to be recognised in the Council’s accounts. Consequently, Rob Powell stated that attention would be given to the levels of commercial risk reserves held. These had been determined prior to development of the PWHTB scheme. A commensurate adjustment would be made to cover any additional exposure to risk the scheme posed. Robust measures were proposed to protect the Authority from the impact of a potential drop in house prices. As roll-out of the scheme progressed, there would be greater certainty in managing risks.


Rob Powell advised that users of the scheme would be provided with the opportunity to buy out WCC’s share of the equity on their property (known as ‘staircasing up’) in blocks of 5%. They could make use of this opportunity at any point during the agreement.


Rob Powell advised that considerable attention had been given to the scope of the definition of ‘priority workers’. He advised that advantages had been identified associated with a narrow definition focusing upon NHS workers, educators, emergency services personnel, priority areas of local government, and others. However, the exclusion of roles in other areas such as prison and probation services, highways, public transport, supermarkets, care workers, and energy could lead to some disadvantages. It was felt that a local, targeted approach based upon local intelligence was preferred.


Councillor Tromans indicated his support for the initiative. He stated that site-by-site assessment based upon local knowledge was a sensible course of action, enabling a flexible approach. He stated that a scheme of this type was unlikely to be offered by most mainstream mortgage lenders who would be unwilling to postpone their first charge. However, he expressed concern at the regulatory and ethical implications if the interest rate formula involved annual accumulation. He suggested that communication with prospective applicants was required to make clear the rationale for why a second charge formed part of the terms of the scheme.


In response to Councillor Tromans, Rob Powell advised that the interest rate charged at the conclusion of the initial five-year period (in circumstances when a house buyer had elected not to re-finance) was proposed to be set at x% plus Retail Price Index (RPI). It would not accumulate over successive years.


Councillor Tromans stated that applicants would benefit from improved clarity by modifying this arrangement so that the year six interest rate was fixed at the base rate plus a percentage. This would still provide security for the Council and incentivise homeowners to refinance.


Councillor Tromans suggested that scope to reassign contracts after the initial five-year period was required. This would mitigate the risk of disproportionately expensive administrative costs applying to the remainder of loans which had not been refinanced.


The Chair commented that this was an area of interest; he asked what measures would be in place in instances when users of the scheme were unable to refinance after the initial five-year period.


Andrew Felton (Assistant Director, Finance) advised that precise details relating to regulation of the scheme would require attention prior to its potential implementation. He stated that the concept of the scheme ‘in principle’ formed the focus of examination at this stage. The points raised by the Committee would be given attention prior to any proposal to seek formal approval for the scheme. He stated that a policy which left those accessing the scheme vulnerable to homelessness would not be pursued; however, a balance was necessary to incentivise a transition to conventional mortgage lenders.


Councillor Roberts praised the scheme, stating that efforts should be made to support the widest possible uptake. He commented that narrowing of the number of sites the scheme applied to and the definition of what constituted a ‘priority worker’ could be an obstacle to this. In instances where take-up was limited, would the pool of eligible priority workers be expanded?


Rob Powell stated that if the definition of ‘priority worker’ was cast too broadly, it would be difficult to manage public expectations against resources available to the Council. There was an awareness of significant recruitment challenges and shortages in some key areas. He commented that in some cases the affordability of homes was an obstacle to recruitment; WPDG provided a vehicle to address this. Ultimately, a flexible approach would allow targeted interventions to be made according to local market conditions.


In response to Councillor Spencer, Rob Powell advised that the prices of eligible new build properties would not be fixed and would be a matter for WPDG to decide in the usual way. However, the loan provided by the PWHTB scheme would be a fixed percentage of the market price.


Councillor Boad stated that house prices in Leamington Spa were extremely high, prompting many to seek more affordable options in Coventry and North Warwickshire. She commented that, as the scheme would be available only within some of the areas where WPDG developments were located, it was possible that prospective homeowners could face a long commute to their workplaces. The scheme should not encourage this outcome.


Councillor Boad commented that, taking account of rising house prices, a household might be able to afford a two-bedroom house; however, this would be inadequate for a large family. She asked what provision would be available for households in the event of a change in circumstances, such as redundancy or illness.


Councillor Boad stated that many low-income households would not be able to afford to buy a house, even given the support offered by the PWHTB scheme. At present, these individuals were cut off from the prospect of homeownership.


Councillor Butlin (Deputy Leader and Portfolio Holder for Finance and Property) stated that a recognition of rising house prices in certain parts of the County was a main driver for introduction of the scheme. He stated that priority workers, such as firefighters, needed affordable homes close to their place of work. The scheme enabled support for this by providing a platform for homeowners based on an expectation of career progression and improved wages. He praised the social value element of the scheme; however, he emphasised the importance of protecting public money by ensuring that the scheme was targeted to reach its intended market.


Councillor Butlin stated that the scheme was not open-ended, this provided security for the Council’s investment. He stated that it offered a tool for WPDG to deploy to reach its affordable housing objectives. A targeted approach would enable the Council to make use of local intelligence to identify where priority worker shortages were present and intervene effectively. This provided an advantage over national schemes. He welcomed the observations made by the Committee, stating that, should the initiative be progressed, attention would be given to financial regulatory considerations.


In response to the points raised by Councillor Boad, Rob Powell stated that the PWHTB scheme would complement national help to buy schemes, and that this could be developed further with Government. It was not regarded as a ‘silver bullet’ which would solve the affordable housing challenge in Warwickshire; however, it would contribute to a wider solution. He advised that, if the early results of the scheme were not positive, there would be an opportunity to step back, limiting exposure to risk.


Rob Powell advised that the maximum price for a PWHTB property was likely to be self-selecting due to the cap on joint income and the sum mortgage companies would be prepared to lend. The Council would adopt a prudent approach; however, even on a limited scale, the scheme could make an important difference to the lives of Warwickshire residents.


Councillor Birdi expressed support for the targeted approach to determining eligibility of priority workers according to site-specific requirements. He asked how decisions would be reached in respect of the types of accommodation made available to PWHTB applicants.


Rob Powell advised that planning authorities would be instrumental in approving sites for development as well as the mix of housing available on a particular site in the usual way for any development. WPDG would support this process and input would be sought from an officer governance group prior to recommendation being made to Cabinet. Local requirements would be taken into consideration and the local member/s engaged appropriately on each site.


In response to Councillor Daniell, Rob Powell advised that the value of the equity-based loan on offer would increase or decrease proportionately with the market value of the property. This was a key factor for both the Council and purchaser of the property. It would be necessary for a prospective house buyer to enter into the agreement from an informed perspective and be well advised of their options at the conclusion of the initial five-year period. He stated that priority workers were likely to benefit from good job security and opportunities for career progression.


The Chair summarised the points of debate and sought the view of the Committee in respect of a resolution. It was agreed that the Committee was supportive of the proposal and that its observations be forwarded to Cabinet for consideration as part of the decision-making process. 




That the Committee:


1.     Notes the proposals outlined by the Priority Worker Help to Buy (PWHTB) report;


2.     Supports the concept of the scheme outlined in principle;


3.     Agrees that its observations be forwarded to Cabinet and asks that they be taken into consideration as part of the decision-making process.



Supporting documents: