New Supply Shared Equity administrative procedures

Annexe D: Financial appraisal

Example 1 - Type 1 project (tender stage)

This example is based on a new build project of 10 properties, where the project receives tender approval after 12 May 2009. At tender stage, it is assumed that each owner will take a 60 per cent equity stake in a property. The District Valuer has valued each property at £110,000.

Scheme costs	£
Land acquisition	104,500
Works	750,000
Fees	75,000
Other costs - including capitalised interest charges (see note 1)	34,173
Development allowances (see note 2)	36,327
Total costs	1,000,000

Funding breakdown	£
Owner (see note 3)	660,000
Grant (see note 3)	340,000
Total costs	1,000,000

Note 1

The grant provider will accept capitalised interest charges arising from any projected development period borrowings as a legitimate capital cost. Estimated interest charges should be based on the projected level and timing of development period borrowings. In line with existing procedures, claims for payment of grant for capitalised interest charges should be substantiated by documentation from the registered social landlord's lender confirming the amount of interest actually charged.

Note 2

Development allowances are calculated as follows:

	£
Allowance per project	13,827
Allowance per new unit (10 x £691)	6,910
New Supply Shared Equity allowance (see note 4)	15,590
Total development allowances	36,327

Note 3

Given that owners are each expected to take a 60 per cent equity stake in the properties and the properties each have an open market value of £110,000, the registered social landlord can expect to receive a total sales income of £660,000 from owners (60 per cent of £1,100,000). The difference between this sum and the total cost of the project equals the required grant funding.

Note 4

As per HIGN 2009/05 for projects approved after 12 May 2009 the New Supply Shared Equity allowance per unit has been reduced by the nominal sum of £100 from the published figure of £1,659 to £1,559 to reflect the central conveyancing arrangement now in place.

Financial appraisal

Example 2 - Type 2 project (tender stage)

This example involves a registered social landlord buying five properties (at an appropriate discount) from a private developer. The project receives tender approval after 12 May 2009. At tender stage, it is assumed that each owner will take a 75 per cent equity stake in a property. The District Valuer has given each property an open market valuation of £120,000.

Scheme costs	£
Property acquisitions	500,000
Other costs (including capitalised interest charges) (see note 1)	14,923
Development allowances (see note 2)	25,077
Total costs	540,000

Funding breakdown	£
Owners (see note 3)	450,000
Grant (see note 3)	90,000
Total costs	540,000

Note 1

The grant provider will accept capitalised interest charges arising from any projected development period borrowings as a legitimate capital cost. Estimated interest charges should be based on the projected level and timing of development period borrowings. In line with existing procedures, claims for payment of grant for capitalised interest charges should be substantiated by documentation from the registered social landlord's lender confirming the amount of interest actually charged.

Note 2

Development allowances are calculated as follows:

	£
Allowance per project	13,827
Allowance per new unit (5 x £691)	3,455
New Supply Shared Equity allowance (see note 4)	7,795
Total development allowances	25,077

Note 3

Given that owners are each expected to take a 75 per cent equity stake in the properties, the registered social landlord can expect to receive a total sales income of £450,000 from owners (75 per cent of £600,000). The difference between this sum and the total cost of the project equals the required grant funding.

Note 4

As per HIGN 2009/05 for projects approved after 12 May 2009 the New Supply Shared Equity allowance per unit has been reduced by the nominal sum of £100 from the published figure of £1,659 to £1,559 to reflect the central conveyancing arrangement now in place.

Financial appraisal

Example 3 - Type 3 project (tender stage)

This example is based on a five property new build project, which receives tender approval after 12 May 2009. As the project involves existing owner occupiers whose homes are scheduled for demolition, it is assumed at tender stage that each owner will take an equity stake equivalent to the value of their existing home. The District Valuer has valued each of the existing properties at £40,000 and has valued each of the new properties at £85,000.

Scheme costs	£
Land acquisition	50,000
Purchase of existing owners' properties	200,000
Works	350,000
Fees	35,000
Other costs (including capitalised interest charges) (see note 1)	14,923
Development allowances (see note 2)	25,077
Total costs	675,000

Funding breakdown	£
Owners (see note 3)	200,000
Grant (see note 3)	475,000
Total costs	675,000

Note 1

The grant provider will accept capitalised interest charges arising from any projected development period borrowings as a legitimate capital cost. Estimated interest charges should be based on the projected level and timing of development period borrowings. In line with existing procedures, claims for payment of grant for capitalised interest charges should be substantiated by documentation from the registered social landlord's lender confirming the amount of interest actually charged.

Note 2

Development allowances are calculated as follows:

	£
Allowance per project	13,827
Allowance per new unit (5 x £691)	3,455
New Supply Shared Equity allowance (see note 4)	7,795
Total development allowances	25,077

Note 3

Given that an owner is expected to take a £40,000 equity stake in a property, the registered social landlord can expect to receive a total sales income of £200,000 from the owners (5 x £40,000). The difference between this sum and the total cost of the project equals the required grant funding, and each owner will have a 47.06 per cent equity stake in their new property.

Note 4

As per HIGN 2009/05 for projects approved after 12 May 2009 the New Supply Shared Equity allowance per unit has been reduced by the nominal sum of £100 from the published figure of £1,659 to £1,559 to reflect the central conveyancing arrangement now in place.

Financial appraisal

Example 4 - Type 1 project (completion stage)

This example shows how a reassessment of grant would work at completion stage on a 10 property development where the actual levels of equity stake taken vary from those projected at tender stage. The project was approved and completed in the same year. At tender stage, it was assumed that each owner would take a 60 per cent equity stake, whereas each owner actually took a 70 per cent stake. The District Valuer valued each property at £90,000.

Scheme costs	£
Land acquisition	70,000
Works	675,000
Fees	67,500
Other costs	28,673
Development allowances	36,327
Total costs	877,500

Funding breakdown at tender stage	£
Owners (see note 1)	540,000
Grant (see note 2)	337,500
Total costs	877,500

Funding breakdown at completion stage	£
Owners (see note 3)	630,000
Grant (see note 3)	247,500
Total costs	877,500

Grant reconciliation	£
Grant approved at tender stage (see note 4)	337,500
Grant approved at completion stage (see note 4)	247,500
Difference	90,000

Note 1

Given that owners were each expected to take a 60 per cent equity stake in the properties, the registered social landlord expected to receive a total sales income of £540,000 from owners (60 per cent of £900,000).

Note 2

The difference between the anticipated sales income and the total cost of the project equalled the required grant funding at tender stage.

Note 3

Instead of each owner taking a 60 per cent equity stake in a property, each owner actually took a 70 per cent stake. Given that the properties each had an open market value of £90,000, the registered social landlord received a total sales income of £630,000 from the owners (70 per cent of £900,000). The difference between this sum and the total cost of the project equals the actual grant funding required.

Note 4

The difference between the grant approved at tender stage (£337,500) and the grant required at completion stage (£247,500) is £90,000. The registered social landlord must repay this sum to the grant provider.