A North East Region Equity Loans Working Group (ELWG) was established in December 2006 comprising of representation from across the region. It agreed in principle that a regional loan scheme was worth pursuing and agreed to prepare an outline proposal for consideration by Local Authorities.
The ELWG met to establish the parameters within which such a scheme should operate, and invited local authorities and others to attend a seminar on July 20th 2007 to seek views from this wider audience on the design and scope of a Regional Loans (Financial Assistance) Scheme.
Characteristics and Benefits of a Regional Approach
The service will receive all funds from the Regional Housing Board (RHB) and distribute these funds according to sub region and local needs.
A regionally coordinated approach can offer the benefit of central strength whilst retaining local flexibility. It offers the opportunity to procure at regional level, through a Regional Administrator and small grants team, (Regional Loans Service). This team would develop consistent performance indicators, risk & business plans, and assists with literature and support for regulatory requirements. The choice of delivery agent, loan administrator and flexibility over eligibility in terms of need and geography would remain local.
An Accountable Body (AB) would be appointed to act for the authorities within the region in the submission of a bid for Single Housing Investment Pot monies to the Regional Housing Board, and to oversee that the monies received are spent in accordance with the terms of the Regional Loan Scheme.
The duties of the Accountable Body would be:
• To ensure full deployment of allocated funds
• Ensuring the proper and effective use of public money
• Completion of bids
• Technical and advisory support to local authorities and organisations
• Putting in place appropriate contractual arrangements, for example, with loan providers and delivery agents
• Providing cash flow support to organizations concerned, possibly funding them pending receipt of bid monies
• Put in place a range of controls to manage the risks associated with their Accountable Body status - financial, legal etc.
• Agrees to accept financial responsibility (and liability) for the Regional Loans Programme
• Charge Admin Fee for the operation of the service
• Can withhold funding if organisations fail to comply with terms and conditions
• Quarterly monitoring system with random verification
• Requirement for written progress reports on a quarterly basis to assess performance targets
• Set service standards for authorities and other organisations involved in loan assistance
• May be involved in agreements to reallocate funds within authorities where they are not taken up
• To obtain from each local authority a resolution under the provision of the Local Government Act 2000 and Local Authorities (Arrangement for the Discharge of Functions) (England) Regulations to allow the Accountable Body to perform the functions of bidding, controlling and otherwise administering the Regional Loans Programme
• Creation and completion of service level agreements with all local authorities participating in the scheme
They would also commission the provision of a loan administration service - this would mean that an external body would administer the loan for a set fee.
This loan administration service can be provided to any or all of the participating local authorities. If the authorities prefer to undertake this work themselves then they may do so providing that the Regional Loans Scheme products are used, and the fees do not exceed those paid to the nominated Local Authority.
Roles and Duties of Loan Administrator
Role of Loan Administrator (LOA) is to deliver a suite of loan products and maintain the loan portfolio on behalf of the Local Authority/Accountable Body/Employer (AB) in a manner which is compliant with current government guidelines and best practice.
Duties:
• All customer contact regarding the loan and providing first class service to applicants
• Provision of information packs and material relevant to the loan
• Visits to loan applicants at a time convenient for them to discuss the loan applications and explain the various schemes
• Processing of loan related paperwork
• Preparation of legal charge
• Attending to execution and registration of legal charge if applicant is not using a solicitor
• Liaison with the Local Authority staff, care and repair/home improvement agencies, solicitors and independent financial advisers.
• Payment of loan moneys (sometimes front-funded and reclaimed)
• Maintenance of a system for repayment and monitoring of any default/arrears for repayment loans.
• Provision of statements annually or in accordance with CLG guidelines
• Providing a redemption and repayment service
• Respecting service levels agreed with the Accountable Body
• Monitoring progress and providing updates, and returns as required by the Accountable Body
• Invoicing for fees and loan payments as specified.
Local Authorities will be able to continue to use their own technical staff and/or home improvement agencies for the technical aspects of the assistance and the loan administrator will deal purely with the loan. Local Authorities would also have the option to 'opt out' of the scheme but would have to resource their products without RHB assistance.
Key Elements of a Regional Loan Scheme
A suite of loans will be developed to cater for a range of different circumstances, to protect the public purse and to offer choice to the customer.
1. An Interest free small works loan (up to £5,000)
Interest free unsecured loan repayable over the period of the loan term, which will normally be 5 years but can be extended subject to agreement from the loan administrator. Intended for small works and must be used towards achieving decent homes standard, but there is not requirement to fully meet the standard.
Eligible clients will be home owners who are defined as vulnerable. The definition of vulnerable will be where the household has one or more income related or disability. Home owners who a re considered low income falling outside these criteria can still be eligible but their case would be considered by a locally based discretionary panel.
Properties eligible for an interest free loan should fall below the Decent Homes Standard (DHS). Only in exceptional circumstances would this stipulation be waived.
Exclusions:
• creation of garages and parking spaces except where client is disabled
• creation of storage space - except where storage space is need for medical equipment or disabled aids
• extensions to properties, except to alleviate overcrowding or existing facilities do not meet DHS eg inadequate kitchen space.
• redecoration except where it has arisen as a result of the works
• fitted carpets or other furnishings
• conservatories
• repairs required as a result of malicious damage caused by the occupants
• any non essential works where the client is choosing to ignore higher priority works.
Maximum loan will be £5,000 and minimum loan will be £1,000
Repayment - regular monthly payment are required. The loan can be redeemed at any time without early redemption charges are made. In exceptional circumstances consideration can be given to deferring payment until the end of the term. Subject to a decision from the local discretionary panel, the term can be extended or the sum outstanding converted to a property appreciation loan at the end of the initial term.
Loan Costs - all associated costs would be met by the scheme subject to specified maxima. Other additional costs would be either rolled up into the loan or paid for 'up front' by the client.
2. A Property Appreciation Loan
A non-interest bearing loan which can assist those homeowners who cannot afford a commercial loan. It is based on equity being released from the property to pay for the cost of the proposed works and then assessed as a percentage of the improved value of the property. Repayment is calculated according to an updated valuation of the property and an equivalent percentage being repaid.
Eligible clients must be home owners who are defined as vulnerable. Homeowners who are considered low income falling outside these criteria can still be eligible but their case would be considered by the local discretionary panel.
Eligible properties must fall below DHS, although in exceptional circumstances this stipulation can be waived. The homeowner should be encouraged to complete all works to achieve the DHS before allowing the owner to use any additional free equity to undertake 'non essential work' up to £10,000.
Exclusions - As outlined for Interest Free Loan.
The minimum loan will be £5,000. Maximum loan will be up to 80% of the free equity in their property. The maximum cash loan is £20,000. All outstanding mortgages and loans against the property must be taken into account. If the cost of the works is likely to exceed the 80% free equity, the case would need to be taken to the local discretionary panel for decision.
The loan will become repayable on the death of the homeowner and the sale of the property, on the disposal of the property, in the event of the owner going in to long term residential care or early repayment by choice.
The loan would be subject to a cap which prevents repayment being anything more than the equivalent of 2% per annum above the Bank of England base rate.
The loan would never fall below its original value even if the property market were to reduce the original value of the property over the term of the loan.
All associated loan cost would be met by the scheme subject to specified maxima. Other additional costs would be either rolled up into the loan or paid for 'up front' by the client.
3. A capital and repayment loan at a discounted interest rate (up to £10,000)
This repayment loan is a secured loan which relies on regular repayments to pay off the loan over a set repayment period. It is primarily targeted at home owners who are unable to access loans from mainstream lenders, but who can demonstrate an ability to sustain regular monthly repayments. As a variant to this 'interest only' loans can also be offered. This is especially suited to those who are likely to receive additional benefit towards the cost of the interest payments from DWP.
It is anticipated that the loans would be offered at a rate below the Bank of England base rate.
Eligible clients must be home owners who are defined as vulnerable. Homeowners who are considered low income falling outside the criteria can still be eligible but their case would be considered by a local discretionary panel.
Homes must fall below Decent Homes Standard (DH) to be eligible. In exceptional circumstances this stipulation can be waived.
Exclusions are as other loan offers.
• The minimum loan offered will be £2,000 and the maximum loan offered will be £10,000.
• The loans can be taken on terms of 1 - 10 years. They can be repaid at any time, interest would be charged until the date of redemption, but no early redemption charges are made.
• All associated costs would be met by the scheme subject to specified maxima. Other additional costs would be either rolled up into the loan or paid for 'up front' by the client.
