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

8. FINDINGS AND RECOMMENDATIONS

Introduction

8.1 This chapter sets out the key findings of the evaluation, and makes recommendations on the future operation of the four LIFT schemes. A table summarising the outcomes from the schemes is included as Appendix 10.

Meeting Household Needs

Reaching the Target Groups

8.2 LIFT has largely been successful at targeting the households identified as priorities for assistance through the schemes.

8.3 Shared equity has been highly successful at targeting first time buyers. The vast majority of NSSE and OMSEP purchasers were first time buyers, falling to around half for GRO and shared ownership. The low proportion of GRO first time buyers may reflect that in many cases targeting was relaxed in order to achieve the wider aim of stimulating the housing market in deprived areas.

8.4 Both OMSEP and NSSE have largely helped newly forming, rather than existing households. Few had moved from the social rented sector, and few felt there was a realistic chance of achieving a social rented house. In contrast, a third of shared ownership purchasers were previously social rented tenants.

8.5 Overall, most LIFT purchasers were attracted to the scheme due to the opportunity to own their home. Around a quarter of LIFT purchasers said that they needed to move because their home was unsuitable. Others mentioned wider housing needs including lack of security of tenure, formation of a new household, financial pressures or occupancy levels.

8.6 OMSEP is offering purchasers more flexibility in house size, location and type. It is driven by the needs of individuals, rather than being property based.

Key Finding

OMSEPand NSSE have been most successful at targeting first time buyers. GRO and shared ownership schemes often had wider priorities to assist other groups or result in wider housing market changes, resulting in a reduced proportion of first time buyers being housed.

Recommendation

At a time of significant restrictions in the availability of public finance the Scottish Government could place greater emphasis on geographical and purchaser targeting in LIFT schemes. In particular it could focus its investment more closely on those parts of the country where first time buyers are experiencing greater difficulty in entering the housing market, or where there is a strategic objective to introduce mixed tenure as part of regeneration activity.

Satisfaction with LIFT

8.7 OMSEP and NSSE were primarily seen as an affordable route into home ownership, and a chance to obtain a first step on the property ladder. Almost all purchasers felt that shared equity had been the right option for them. OMSEP purchasers were slightly happier with the quality of their homes than NSSE purchasers, who often had issues with snagging and factoring services. OMSEP purchasers appeared to manage and adjust their expectations of their home, due to experience of purchasing on the open market.

8.8 RSLs appear to be operating different practices and providing different levels of service when dealing with property defects in new supply LIFT schemes. This is both a cause of concern to some purchasers and raises questions about protecting the Scottish Government's investment.

8.9 GRO purchasers were also generally happy with their home. However, almost half had snagging or build quality issues and a third raised issues about mix and lack of community spirit in the neighbourhood.

8.10 Shared ownership purchasers were least happy with their home. Less than half felt that it was the right option for them. Many felt it was not a good deal financially, and some had issues about security due to the '20 year rule'.

Key Finding

OMSEPand NSSE have generally supported people into positive, sustainable housing situations. GRO is also meeting people's housing needs, with some concerns around build quality and sustainable neighbourhoods. Shared ownership does not appear to be meeting household needs to the same extent, due to significant concerns over value for money.

Recommendations

There is a need to promote consistent practice among RSLs in dealing with new property defects. In addition some RSLs are offering a lower level of consumer protection to purchasers than those afforded by private house builders and developers that comply with the new Consumer Code for House Builders. NHBC registered builders are required to adopt the Consumer Code for House Builders for properties constructed or reserved since April 2010. The purpose is to ensure that home buyers:

• are treated fairly;
• know what service levels to expect;
• are given reliable information on which to base a decision; and
• know how to access speedy, low cost dispute resolution arrangements.

We would recommend that the Scottish Government requires RSLs to provide a comparable level of protection to shared equity and shared ownership purchasers.

The Scottish Government should encourage RSLs and private developers to provide prospective purchasers of new supply property with more detailed information regarding the ongoing housing costs, particularly in relation to anticipated service charges.

Enabling Home Ownership

8.11 An analysis of whether LIFT purchasers could have afforded to purchase on the open market suggests that almost half of NSSE purchasers could have purchased at the bottom end of the open market, and a quarter of OMSEP purchasers. However, this hides variations at a local level - with a much smaller proportion of purchasers in Edinburgh, East Lothian, East Renfrewshire and Aberdeenshire able to afford to purchase on the open market. It also does not take into account other factors such as particular housing needs or the need to provide a deposit.

8.12 Interviews with shared equity purchasers suggest that only around 10 per cent believe that they could have purchased on the open market. This increases to a fifth for shared ownership and a third for GRO purchasers.

Key Finding

Quantitative data suggests that around half of NSSE and a quarter of OMSEP purchasers could have bought at the lower end of the open market. This contradicts qualitative interviews where few purchasers stated that they could have purchased on the open market. The need for a deposit could be a significant factor, as could local variations in ability to purchase and particular housing needs.

Meeting Long Term Housing Needs

8.13 Around three-quarters of OMSEP and NSSE purchasers believe that their home is a medium to long term solution to their housing needs. Few are aiming to move on in the next five years. Those who want to move generally wish to move on to full ownership, and believe that the shared equity schemes have contributed substantially to achieving their long term housing aims.

8.14 Only a fifth aim to increase the level of equity they hold in their property in the next five years. Some do not think that they will ever increase the equity share that they hold. This potentially creates issues around the sustainability of the shared equity schemes. The current economic climate is likely to affect this situation, as is the desire among many to pay off their current mortgage before increasing their equity stake.

8.15 Very few sharing owners planned to increase their share of the equity in the property, with concerns about value for money. However, over three-quarters anticipated remaining in their current property for the medium to long term.

8.16 GRO purchasers exhibited the greatest mobility. Of the small sample interviewed, all intended to move on to another owner occupied property in the next five years.

Key Finding

Most OMSEP, NSSE and shared ownership purchasers see LIFT as a medium to long term housing solution. GRO purchasers appear more likely to consider moving on within the owner occupied sector in the short term.

Meeting Particular Housing Needs

8.17 OMSEP, NSSE and shared ownership specifically aimed to help people with particular housing needs, for example due to disability. There is limited information available for shared ownership. Information from the shared equity schemes demonstrates that OMSEP is making a significant contribution to meeting particular housing needs. The scheme offers flexible housing solutions for disabled people with particular housing needs, including flexibility on location, design and size.

8.18 There may, however, be some barriers to accessing the scheme due to anecdotal evidence of misinformation.

Key Finding

OMSEPmakes an important contribution to meeting the particular housing needs of disabled people.

Recommendation

The Scottish Government should continue to promote the value of OMSEP and the contribution it can make in meeting particular housing needs.

Mobility

8.19 LIFT purchasers exhibit varying degrees of mobility. GRO purchasers were highly mobile, with almost a third moving on within five years. A minority of purchasers across all schemes felt 'trapped' or that there were constraints on their mobility. There were a number of factors affecting this.

• Affordability - 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.
• Negative equity - 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.
• Lack of demand - Some NSSE and shared ownership purchasers had tried to sell or considered selling their properties but had experienced issues with demand.
• Motivation - A number of LIFT purchasers did not believe that it was financially in their interests to increase their equity stake either at all (particularly if older), or while owing money on their mortgage.
• Golden share - Some purchasers with a golden share on their property did not see the value in increasing their equity stake if they could never own their property outright.
• GRO claw back - GRO purchasers in pressured market areas would have to pay back the grant received if moving within a specific time period (usually 5 to 10 years). This was a major consideration and impacted on mobility during this time period for these purchasers.

8.20 Issues around affordability, negative equity and lack of demand will affect owners across much of the property market in this climate, rather than just LIFT purchasers. However, some shared ownership purchasers felt that lack of demand related to value for money offered by shared ownership.

Key Finding

LIFTpurchasers are experiencing many of the same barriers to mobility as other owners due to the current housing market conditions. However, the OMSEP and NSSE schemes have created conditions where some owners do not see it in their interest to consider other housing options due to the good value offered by their current circumstances.

Recommendations

Encouraging purchasers to consider their options

Over time shared equity purchasers may become less aware of the options available to them or require a reminder to actively progress them. We believe there would be value in reminding owners of their options to acquire additional equity on a periodic basis. This could take the form of mailings, with the opportunity for subsequent telephone support. In the case of OMSEP schemes the Scottish Government could contract this work to the five RSLs contracted to administer the scheme. In the case of NSSE more detailed consideration would require to be given to the relative merits of the work being undertaken by the RSL developer or contracted to a smaller group of organisations.

Providing greater flexibility

The current restrictions placed on the timescales and the amount of additional equity NSSE and OMSEP purchasers can acquire may be creating an unnecessary barrier. We would recommend that the Scottish Government consider removing these restrictions and offering greater flexibility.

In a small number of cases sharing owners are unable to dispose of their properties due to a lack of demand for shared ownership and RSLs are not willing to exercise a buy back option. In these circumstances we would recommend that sharing owners are allowed to privately let their property under strict conditions.

Introducing financial incentives

There is arguably no financial incentive to a shared equity purchaser to acquire additional equity within a particular timeframe as they are receiving an interest free loan from the Scottish Government on the equity it owns. We would recommend that consideration be given to introducing interest charges on the loan after a period of time, similar to the HomeBuy scheme in England. Care would need to be taken regarding issues of affordability, purchasers acquiring property as a result of demolition, disabled purchasers and where a 'golden share' was applied. However, we believe that this would provide more of a financial incentive for purchasers to consider acquiring additional equity where they could afford to.

The use of the golden share

The use of the golden share is prevalent in parts of Scotland as a mechanism to retain affordable housing in perpetuity. However, it would appear to be acting as a disincentive to shared equity purchasers acquiring additional equity. We would recommend that the Scottish Government consults with local authorities with a view to targeting its use. For instance, we can see no value in it being applied in regeneration areas. We can also see no value in it being applied to OMSEP properties in situations where the Scottish Government do not intend to exercise their right of pre-emption at the time of a resale. We would suggest that the Scottish Government advises OMSEP purchasers currently in these circumstances that it does not intend to exercise the buy back option which may make acquiring additional equity more attractive.

In addition we would recommend that the Scottish Government re-examines the golden share model to identify whether there would be value in replacing it with a right of pre-emption that does not restrict the amount of equity a purchaser can acquire.

8.21 A key attraction of the LIFT schemes was security, particularly in comparison to the private rented sector. However, our interviews with purchasers demonstrated considerable concern about the security offered by NSSE, OMSEP and shared ownership properties due to the '20 year rule'. This was raised by a minority of purchasers who were fully aware of the issue. Others confessed not to understand or did not seem aware of it at all.

Key Finding

The '20 year rules' are creating some concerns about long term security for OMSEP, NSSE and shared ownership purchasers.

Recommendations

We would recommend that prospective purchasers are provided with more prominent information regarding the length of their agreement when applying for and buying a property.

We would recommend that the Scottish Government gives consideration to issuing guidance to RSLs in the case of shared ownership properties on the options for entering into new occupancy agreements after 20 years, to ensure consistent practice and allay the concerns of owners. In the case of shared equity properties, we would recommend that the Scottish Government indicates to those making enquiries that it would consider sympathetically requests to enter into a new standard security after 19 years.

Affordability

8.22 Average purchaser prices and purchaser contributions were lower for OMSEP than NSSE properties, perhaps reflecting that the latter include a far higher proportion of second hand and lower quality houses than new build NSSE properties. On average OMSEP purchasers had lower income levels.

8.23 Analysis of the lending multiples achieved by NSSE purchasers during 2008/09 and 2009/10 found that 19 per cent had borrowed more than 3.5 times their income, at the mid-point of their income band. Seven per cent had borrowed more than 3.5 times their income at the very top end of their income band.

8.24 The same analysis for OMSEP purchasers during 2008/09 and 2009/10 shows that 31 per cent had borrowed more than 3.5 times their income at the mid-point of their income band and 10 per cent at the top point. This may in part be a reflection of the proportion of OMSEP purchasers located in Edinburgh and the Lothians.

8.25 Feedback from purchasers suggests that most NSSE and OMSEP purchasers feel that their housing costs are affordable. However, a minority of OMSEP purchasers indicated their housing costs were difficult but manageable. Three were experiencing some difficulties with their housing costs.

8.26 Among sharing owners and GRO purchasers no information is available on borrowing multiples. However, we found more mixed views about whether shared ownership was an affordable option, and particular concern about occupancy charges.

Key Finding

Whilst the cost of outright home ownership was greater for a NSSE purchaser as opposed to an OMSEP purchaser, housing costs were more affordable to the former.

Additionality

8.27 The LIFT schemes are contributing to a number of wider aims, beyond simply helping to meet the needs of households in Scotland. Over the past five years LIFT has reduced pressure on social rented property, through freeing up approximately 1,130 properties as people move from social rented to owner occupied property. It has also reduced social rented housing lists by approximately 1,285 - of which around 247 would have had a realistic chance of being housed.

Key Finding

LIFTis reducing pressure on the social rented sector through freeing up properties and reducing demand expressed through housing lists.

8.28 NSSE, GRO and shared ownership are resulting in new build properties, stimulating the construction industry and creating more owner occupied homes. OMSEP is also supporting new households to form and purchase in the owner occupied sector, increasing demand for owner occupation. This could either result, ultimately, in new build of properties for owner occupation or could push aside other households at the margins of home ownership. However, at present the impact of OMSEP on the housing market is not clear.

8.29 Some LIFT purchasers are also seeing wider social benefits as a result of their new home. Shared equity purchasers felt that participating in the LIFT scheme had changed the quality of their lives significantly more than GRO and shared ownership purchasers. Shared equity purchasers highlighted wider social benefits including children becoming more settled and secure in education; becoming more independent; wider financial benefits such as working from home; and general improvements in quality of life.

Key Finding

OMSEPand NSSE appear to contribute significantly to quality of life for purchasers, resulting in wider social benefits. The economic contribution that OMSEP makes to the housing market is not clear.

Recommendation

The Scottish Government should undertake further work to assess the economic impact of OMSEP.

Contributing to Mixed and Sustainable Communities

8.30 Shared ownership, NSSE and GRO schemes all have the potential to contribute to the creation of mixed and sustainable communities through the investment they bring to create new residential areas.

8.31 Overall we found that around two-fifths of NSSE properties had been developed in the more deprived half of Scotland's datazones and around one quarter in the 15 per cent most deprived. Limited data that does exist for GRO properties suggests that around 45 per cent are located within the 15 per cent most deprived datazones. This suggests they are more targeted to deprived neighbourhoods. No information is available on the datazones in which shared ownership schemes are located.

8.32 Shared ownership, NSSE and GRO have all been used as a vehicle for introducing mixed tenure into existing predominately social rented neighbourhoods and creating a tenure mix as part of new social housing development. However we found that more GRO than NSSE households felt that their communities were mixed.

8.33 The extent to which LIFT is contributing to sustainable communities is more difficult to judge - not least because there is no commonly accepted definition of a sustainable community. Overall we found those we consulted to be generally positive about their neighbourhoods. However, around a fifth of NSSE purchasers were experiencing anti-social behaviour or community safety issues. NSSE purchasers also expressed issues relating to tenure mix and integration. In particular we found there to be tensions between households of different tenures, either as a result of differences in lifestyle or a perception of differences in social standing.

Key Finding

NSSE, GRO and shared ownership have all contributed to creating mixed communities. However, there is evidence of some tensions arising from tenure mix and integration.

Recommendation

Developers of LIFT schemes should be encouraged to draw on existing good practice examples and lessons learned elsewhere. A good starting point is encouraging membership of the Scottish Government's Mixed and Sustainable Communities Learning Network.

Value for Money

8.34 Our assessment of the upfront costs of the four LIFT schemes found that, on average, GRO required the lowest level of subsidy and shared ownership the highest. However, when receipts are taken into account, NSSE and OMSEP generally provide better value for money.

8.35 OMSEP is a particularly cost effective option. While its upfront subsidy costs are around one third lower than NSSE, its long term costs are around one half. However, the impact OMSEP is having on overall supply is less clear.

8.36 OMSEP has also provided a cost effective solution to meeting the needs of people with particular housing needs. The average upfront subsidy level for the top ten per cent of the most expensive properties was only around 80 per cent of the average cost of a social rented property.

8.37 Purchasers of GRO funded properties not subject to standard securities have been achieving considerable gains on the resales of properties after relatively short timescales. This raises questions about the 'leakage' of public subsidy and whether GRO represents good value for money to the public purse.

8.38 Overall shared ownership was found to provide the poorest value for money in terms of upfront and long term subsidy costs, and the cost to the purchaser. We found considerable variations in the occupancy charges RSLs make to sharing owners.

Key Finding

OMSEPand NSSE provide the most cost effective mechanisms of supporting low and moderate income households into home ownership.

Recommendations

We recommend that the value of retaining three new supply LIFT schemes to support households into home ownership should be reviewed. We believe consideration should be given to discontinuing GRO and shared ownership schemes, with NSSE and OMSEP schemes being modified to allow purchasers to acquire a lower level of equity than currently permitted, and NSSE schemes being the sole vehicle to stimulate housing markets in regeneration areas.

We believe the advantages of this are threefold:

• greater simplicity to purchasers and scheme administrators;
• greater opportunity to target resources to purchasers; and
• better value for money to the public purse.

We would recommend that the Scottish Government introduces guidance on the setting of occupancy charges should it decide to retain shared ownership

Data Recording and Monitoring

Key Finding

A recurring theme throughout the evaluation has been a lack of data, or inconsistencies in the way LIFT schemes are being monitored.

Recommendation

We would recommend that a review is undertaken to improve the way in which data is collected and collated to ensure that:

• information on the profile of purchasers is collected from all LIFT purchasers as a condition of participating in one of the schemes;
• information on the capital cost and nature of provision is collected for each LIFT scheme; and
• information on the amount and nature of receipts being received is maintained in a consistent format.