The Evaluation of Low Cost Initiative for First Time Buyers (LIFT)

3. MOBILITY

Introduction

3.1 This chapter explores the extent to which LIFT purchasers were able to move on within the housing market as household needs and aspirations change.

Property Sales

3.2 Scottish Government sales log records show the number of NSSE and OMSEP purchasers who bought between 2005/06 and 2009/10, and have since sold their property. We gathered information on GRO sales from Sasines property sale records, based on those properties recorded in GRORE. As none of the datasets are complete there will some margin of error.

Table 3.1: NSSE, OMSEP and GRO Resales (excluding repossessions)

	New Supply	Open Market	GRO
2005/06	-	-	2
2006/07	0	1	6
2007/08	1	10	13
2008/09	0	15	6
2009/10	1	15	7
Total Sales	2	41	34
Total Purchases	1,676	2,854	113
% Sold	0.1	1.4	30

Source: LIFT Sales Log Database and Sasines Records

3.3 However, the data demonstrates that GRO purchasers are highly mobile, with a third moving on in less than five years. Almost all purchasers made a profit on their sale - an average surplus of £20,056 (28%) on the price they originally paid. On average, these purchasers stayed in their property for 25 months.

3.4 The figures suggest that OMSEP and NSSE purchasers are significantly less mobile. However, evidence from stakeholders such as RSLs suggests that the actual level of resales, particularly of NSSE properties, is likely to be considerably higher. For example, one RSL participating in NSSE estimated that, on average, ten to fifteen NSSE properties were sold annually.

3.5 Information on sales of shared ownership properties purchased between 2005/06 and 2009/10 is not available. Between 2005 and 2010 a total of 603 sharing owners sold their property. However, this includes all shared ownership purchasers since 1983.

Views on Mobility

3.6 A number of purchasers indicated that they initially had concerns about mobility when considering buying a home through LIFT. Purchasers had concerns that they would not be financially able to increase their share, and that this may lead to difficulties if they wanted to move on and purchase elsewhere. However, most purchasers felt that their concerns about mobility were put to rest due to good information at the outset about how the LIFT schemes worked.

3.7 GRO purchasers reported greatest concern about mobility. Around a quarter of GRO purchasers consulted were worried about either lack of demand for their property causing difficulties selling, or the requirement to repay the grant if moving within a certain time frame.

"Me and my husband are hoping to start a family and would want to move... we are concerned that we would have to repay the grant to the developer before moving on and this would be at least £22,000."
GRO purchaser

3.8 Most OMSEP, NSSE and sharing owners felt that they could not afford to buy a property outright in the current climate, and would instead remain where they were. A number of LIFT purchasers (particularly NSSE and OMSEP purchasers who bought at the height of the market) were in negative equity and therefore did not believe that it was a sensible time to consider moving on. Some NSSE and shared ownership purchasers had tried to sell or considered selling their properties but had experienced issues with demand.

3.9 Three OMSEP purchasers wished to rent out their existing property, and buy another, and were concerned that the scheme did not allow this.

"I would like to move on but ideally I would like to retain ownership of my current flat and use it to let out to support another mortgage. I think the shared equity scheme is a bit restrictive in this regard."
OMSEP purchaser

3.10 A minority of shared ownership purchasers felt that the scheme 'trapped' them in a very expensive option. A similar proportion felt that the re-sale process was unfair, as the RSL takes its share back without reflecting the investment and maintenance that the owner has put into the house.

Shared ownership - A purchaser's experience

Mr and Mrs A were owner occupiers living in poor quality overcrowded conditions 15 years ago. They were unable to afford to purchase another house of a suitable size. They heard about shared ownership for the first time through an RSL. They were attracted to being able to purchase a suitable house and gradually tranche up to full ownership over time.

Mr and Mrs A purchased a 25 per cent share of the property for £15,000 with a 95 per cent mortgage. Over the past 15 years they feel the cost of their occupancy charge has increased disproportionately. It is currently £200 each month. In addition they pay for insurance, maintenance and factoring.

While they are able to afford these housing costs, the increase in the value of the property together with the level of occupancy charge prevents them from tranching up to a 50 per cent share. They feel they are now 'trapped' in an expensive housing option which does not represent good value for money but they have no option but to remain where they are.

Mobility and the Golden Share

3.11 In some cases, the Scottish Government holds a 'golden share' of shared equity properties. This means that the purchaser can never buy the property outright, and the Government has the option of purchasing the property when it is sold. This allows the property to remain in the affordable housing sector.

3.12 There is no central record of the properties over which the Government holds this golden share. However, it is in common usage in some parts of the country. For instance, all NSSE schemes in the Highlands, Aberdeen, Aberdeenshire and Moray have golden shares. This includes regeneration areas where there may not be market pressures. OMSEP properties provided in the Highlands and Cairngorm National Park have golden shares.

3.13 None of the shared equity purchasers reported the use of 'golden share' acting as a problem in relation to mobility within the housing market. However, a number of purchasers with golden shares did mention that they were unlikely to increase their equity stake as they could see no advantage to this if they could never own their property outright.

3.14 The RSLs we consulted generally felt that the golden share performed two key roles. Firstly, it retained affordable housing in areas where it may be difficult to replace it. Secondly, for NSSE, the subsidy required to organise a resale was lower to that required in providing a new house. Stakeholders were less sure about the value of using golden share for OMSEP, and as far as we can ascertain there have been no buybacks of OMSEP properties. This is in part due to the cost, but also the issue of houses often being located in areas where future demand may be uncertain.

Security

3.15 Some shared equity and shared ownership purchasers expressed significant concerns about security of tenure. Shared equity and shared ownership schemes are subject to the '20 year rule' on leases and standard securities applied by the Land Tenure Reform (Scotland) Act 1974.

3.16 Many purchasers did not appear to be aware of the 20 year rule. A small number specifically raised the 20 year rule, and its implications. Perhaps not surprisingly there appeared to be greater awareness among sharing owners, some of whom have been in their homes longer than 20 years.

3.17 Although it is possible for RSLs to enter into a new Occupancy Agreement (for another 20 years), a small number of sharing owners indicated that they had been in communication with the RSL involved and the Scottish Government but had been unable to resolve the matter to their satisfaction.

"My plans for the future were to stay in the property for the rest of my life but then there is the issue of the 20 year rule, which I had only heard about in passing and it had never properly been explained to me."
Shared ownership purchaser

3.18 Three shared equity owners we interviewed also expressed concern about the '20 year' standard security rule. They felt that the rule had not been sufficiently explained to them at the time of acquiring their property, and that it was not clear what would happen after 19 years when their agreement came to an end. As security of tenure was a significant reason for many purchasers wanting to move into home ownership, this was understandably a major concern.

Summary

Property Sales

3.19 GRO purchasers appear to be highly mobile within the housing market, with 30 per cent moving on in less than five years. On average, GRO purchasers stayed in their home for just over two years.

3.20 Figures suggest that OMSEP and NSSE purchasers are significantly less mobile. However, there is evidence that there have been more resales than have been recorded, particularly within the NSSE scheme.

Views on Mobility

3.21 Although many purchasers had concerns about mobility at the outset, most shared equity purchasers no longer had worries. GRO purchasers had the most significant concerns, with worries about the level of demand for their property, or about repaying grants in pressured market areas. A minority of shared ownership purchasers also felt trapped. OMSEP purchasers reported some frustration that they were not able to let their property out.

Use of Golden Share

3.22 There is limited information on the use of the golden share for shared equity purchases. However, the golden share does not appear to be causing purchasers any issues in terms of mobility and being able to move on. However, it is discouraging some purchasers from increasing their equity stake, as they can never own 100 per cent of the equity in their home.

Security of Tenure

3.23 There are significant concerns about the lack of security for shared equity and shared ownership purchasers, due to the '20 year' rules. Purchasers also have concerns about the lack of communication and information around the implications of the '20 year' rules.