Agenda item

(Report of the Director of Adult and Housing Services. To be introduced by the Cabinet Member for Regeneration and Housing). The report sets out proposals for enhancements to the payment options available to leaseholders for both major works and the annual service charge and for improved arrangements for the recovery of the costs of collection. 

Cabinet considered a report, introduced by the Cabinet Member for Housing and Regeneration, which sought approval of proposals for enhancements to the payment options available to leaseholders for both major works and the annual service charge and for improved arrangements for the recovery of the costs of collection.

In response to a question Cabinet was advised that there were only fourteen leaseholders in the £30-40k invoice bracket.  The reasons for the repairs varied from property to property.  The report set out some helpful suggestions to help ease the financial burden.

RESOLVED:

        i.            That it be agreed that the interest free period available to leaseholders living in their leasehold properties (owner-occupiers) and unable to obtain bank loans should be extended by a further one  year (interest free) for invoices from £20k to less than £30k and by a further two years (interest free) for invoices of £30k and above.  An additional two years will be available with the payment of interest.

      ii.            That it be agreed that where leaseholders receive major works bills in successive years they should have the option to add them together and pay the total in monthly installments where they have already entered into such an agreement and have kept their payments up to date.

    iii.            That it be agreed that administration charges of £25 annually are applied to cover the cost of monitoring monthly loan arrangements and a one-off charge of £100 is applied for setting up secure loan arrangements of £10,000 and above.

     iv.            That it be agreed that flexible payment arrangements would be made available for the annual actual service charge, with a prompt payment discount of 2½% for bills over £100 where they are paid in full within fourteen days from the date of issue. 

       v.            That it be agreed that for actual bills from £100 - £500 leaseholders should be allowed to pay in monthly instalments over six months and for amounts over £500 they should be allowed to pay in monthly instalments over twelve months, in both cases interest free.

     vi.            That it be agreed that all the proposals contained in this report should be implemented with effect from 1 December 2013.

Alternative options considered

Equity release

In addition to the enhanced payment options, the possibility of an equity release scheme has been considered.Local authorities have been empowered to grant leaseholders the option of granting loans on an equity release basis under Sections 308 and 309 of the Housing & Regeneration Act 2008. This would be a form of mortgage.

Guidance was issued in an Explanatory Memorandum which was laid before Parliament in 2009.  Paragraph 7.1 of the guidance states that the new regulations give housing authority landlords discretionary powers for the purpose of assisting their leaseholders in the payment of their service charges to:

a)      offer them loans on equity share terms, i.e. wholly or partly interest-free loans, in which instead the lender is entitled on repayment of the loan to a percentage of the market value of the flat;

b)      purchase an equitable interest in the flat, so that the housing authority will be entitled to a specific share of the value of the flat when it is sold.

Paragraph 4.22 of the CLG guidance confirms that all the administrative costs must be recharged to the leaseholder in respect of an arrangement of this nature. Paragraph 4.23 states that where an equity release arrangement is entered into, this should be covered either by a new shared ownership lease or an amendment to the existing lease which would incur additional costs for the leaseholder.

The Council used to grant mortgages to some Right to Buy applicants but this policy was discontinued on the grounds of cost and the administration of the remaining loans was outsourced to an external provider

The only local authority which appears to have actively implemented a policy of this kind is Southwark Council, which informs leaseholders of the two options on its website.  Although Ealing has included equity release in its payment options policy, it does not promote it since the administrative costs are too great.  Hence no leaseholder in Ealing has taken up this option to date. 

Given the considerable administrative costs involved, it is very likely that the private sector can offer better value to leaseholders in this area.  Specialist departments in banks can set up the necessary procedures for dealing with relatively large volumes of applications which greatly reduces the administrative costs per unit.

The adoption of an equity release scheme is not recommended on the grounds of the considerable administrative costs involved.  These would have to be recharged to the leaseholders themselves and would involve the Council in granting loans with no set date of expiry. 

Reasons for decision

A decision is required in order that revised payment options and charges can be introduced to assist leaseholders facing larger than usual bills for works to their homes.