Contact: Jon Pittam, ext 7400, Kevin Gardner, ext 7381

1 Introduction

1.1 The Local Government Act 2003 enabled billing authorities to reduce the council tax discount granted to owners of second homes with effect from 1 April 2004. The additional income is shared with the County Council and fire and police authorities in proportion to their precepts.

1.2 Following decisions by six of the eleven district councils to reduce the discount in 2004/05 from 50% to 10% the County Council began discussions with district councils with the aim of agreeing a countywide protocol for the use of the additional income for affordable housing. However it became clear in early discussions with districts that they saw little prospect of reaching such an agreement amongst themselves.

1.3 Cabinet confirmed in September 2004 that agreement should therefore be sought with district councils on an individual basis on ring-fencing the additional income in their areas for use on affordable key worker housing schemes. Discussions on East Hampshire and New Forest District Council's proposals have reached an advanced stage and require Cabinet approval.

2 East Hampshire

2.1 East Hampshire District Council have proposed that in 2004/05 the £181,000 additional income raised in their area be used in a pilot for a Homebuy scheme in which the County Council and East Hampshire District Council grant a small number of eligible staff a loan towards buying a house in the open market, subject to repaying a proportional share of the proceeds when the house is sold.

2.2 The County Council is free to define key worker as it chooses. At present very little information exists on potential demand for affordable housing among Council staff either geographically or by role. However the popularity of the Government's Key worker Living scheme with those County Council staff eligible (teachers and social workers) suggests that there is likely to be demand from staff in other roles.

2.3 Discussions are continuing with the Director of Human Resources regarding the eligibility criteria for the pilot scheme. One option would be to define key worker as any member of the County Council's staff not eligible for the Government's Key worker Living Scheme and working within the East Hampshire area. Loans would be allocated to eligible County Council and East Hampshire District Council in a proportion of 7:1 (relative to the councils' contributions to the funding) on a first-come first-served basis. The level of enquiries from staff in particular roles will provide an indication of the posts in which there is the greatest need for affordable housing support in this form in any future scheme. Delegated authority is requested for the County Treasurer in consultation with the Director of Human Resources to define the eligibility criteria for County Council key workers.

2.4 Typically loans up to £30,000 would be required to make the scheme affordable for the applicant, allowing the scheme to support 5 to 6 key workers using the 2004/05 income after taking into account administration costs. East Hampshire would like to launch the scheme in February 2005.

2.5 To prevent the equity-loan being treated as a taxable benefit to the employee the scheme needs to be managed by an independent organisation. It is suggested that Swaythling Housing Society are contracted to manage the scheme as they are the zone agents appointed by the Government to administer its Keyworker Living Programme for Hampshire and the Isle of Wight, which includes a popular Homebuy option. Swaythling are therefore uniquely placed to administer the scheme, and have indicated that the fee would be £1,541 per unit. On this basis it is felt that tendering for the management of the scheme should not be required. Approval in principle is sought from Cabinet for the scheme as outlined in the proposal attached as an Appendix.

3 New Forest

3.1 As reported to Cabinet in September New Forest District Council have proposed that a proportion of the income raised in their area be used to contribute towards two proposed new-build shared ownership housing schemes in Lymington and Dibden.

3.2 In addition to these potential schemes, it is proposed that a pilot Homebuy scheme be introduced to help meet immediate demand for affordable properties in the New Forest area. New Forest District Council have allocated their share of the 2004/05 income to their own social housing budget. Therefore only the County Council's share (£571,000) would be used in the pilot and eligibility would be restricted to County Council keyworkers. Like the East Hampshire scheme, New Forest Homebuy would be administered by Swaythling Housing Association and on the same terms. The intended launch date is also February 2005.

3.3 It is suggested that in the pilot up to 10 County Council keyworkers are helped to buy property in the New Forest using the majority of the County Council's share of the 2004/05 income.

4 Legal Powers

4.1 The Council is empowered to enter into the proposed arrangements further to Sections 111 and 112 Local Government Act 1972. Together, these provisions enable the Council to do anything, including the lending of money, which is calculated to facilitate, or is conducive or incidental to, the discharge of its functions relating to the appointment of staff.

5 Recommendations

5.1 The recommendations are contained in the decision sheet summary which precedes this main report.

Section 100 D - Local Government Act 1972 - background papers

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

1. Published works.

2. Documents which disclose exempt or confidential information as defined in the Act.

TITLE FILE

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Hampshire County Council

Proposal for Keyworkers Homebuy Scheme- East Hants Area (November 2004)

The Swaythling Housing Society Ltd is the government Zone Agent for the Keyworker Living programme for Hampshire and the Isle of Wight. The Keyworker Living Programme has provided £690m in government funds to assist the development of a variety of affordable housing schemes across the South of England for public sector workers who are considered key within their communities. In this Zone Agent role, Swaythling are responsible for promoting and marketing all of the available housing options for rent and for sale provided by various local housing associations. We are also obliged to provide statistics on the take up and demand for the various schemes on offer to the ODPM, Housing Corporation, employers, local authorities and other agencies. The schemes are programmes to run from April 2004 to March 2006.

In particular, Swaythling are the sole provider of the Keyworker Homebuy scheme in the Hampshire area. We hope to provide 665 Keyworker Homebuy Loans to assist keyworkers such as nurses and teachers buy a home of their own on the open market by the end of March 2006. The detailed rules for this schemes are defined within the Housing Corporation's Capital Funding Guide.

It is proposed that the scheme for Hampshire County Council's keyworkers should follow as closely as possible to the scheme laid down by the government's Keyworker Living Homebuy scheme as the leaflets are available and procedures are clearly defined.

What is a Keyworker Homebuy Loan?

The loans are normally about £30,000 and there are no rent or repayments required. The loan is registered as a second charge against the property after the lender's first charge. The loan is expressed as a percentage of the value of the property at the time of the purchase.

For example:

A property valued at £150,000.

Keyworker's Mortgage £120,000 plus Homebuy Loan £30,000

The £30,000 = 20% of value of property.

When property sold, say in 4 years time, value might be £200,000. Amount of loan redeemed = 20% of £200,000 is £40,000.

How much can be offered under the loan?

We can offer loans of up to £30,000 to help buy a home on the open market (normally through an estate agent) just like any other buyer. This level of grant fits the market well at present in the Hampshire area but change in market prices may require a revision of loan values. Occasionally, depending on need, we will be able to offer more than £30,000, up to a maximum of £50,000. An example of need would be a family looking for a 3 bedroom home but where total income in the family will restrict the ability to raise a mortgage. Most keyworkers tend to be singles or couples in their twenties who require cheaper one or two bedroom flats. It is also possible that singles who are new recruits and on lower salaries may require larger loans to bridge the affordability gap.

What homes can be purchased under Homebuy?

Generally these are flats and houses on the open market through an estate agent. The definitions of homes to be purchased are stated in our information booklets and will exclude for example, caravans and houseboats, land for sale and shared ownership schemes developed (and already in receipt of subsidy) by a housing association.

Who are Keyworkers?

The keyworkers are carefully defined under the government's Keyworker Living schemes and are clearly targeted at the most highly qualified of workers. 40% of the programme must be allocated to qualified teachers working in the state sector, to include Further Education teachers. A further 40% must be allocated to NHS staff who are in clearly defined `medical' professions such as nurses and pharmacists (health assistants are excluded).

The remaining 20% of the programme is allocated to Local Authority workers such as fully qualified Social Workers or Occupational Therapists; Probations Officers and Prison Officers (Winchester Prison only).

Proposal - Hants CC will need to determine a list of keyworkers who qualify for the scheme. Keyworkers would need to be working in the East Hants area and serving the community there. The precise jobs need to be listed for clarity and so that eligibility sections in our information guides and website can be adapted. It is suggest that if the scheme is to be used as a recruitment tool, vacancy rates for workers within this area should be examined to determine shortages and particular recruitment problems.

How is the Loan charge registered?

The solicitor acting for the purchaser (keyworker) will sign a standard undertaking to register the charge in favour of The Swaythling Housing Society Ltd. The charge is ranked second after the lender's mortgage loan. Care is taken to ensure that the lender's mortgage and keyworker's loan together do not exceed the value of the property purchased.

What happens when the keyworker's loan is redeemed or property sold?

Most properties purchased under the scheme tend to be `starter homes' and it is expected that with 7 years, most homes will be sold and keyworkers will want to move on to a `family sized home'. Also, as salaries are likely to rise, especially as most loans are taken up by new recruits, some keyworkers will want pay Swaythling back the keyworker loan and remortgage to incorporate the keyworker loan amount. When this occurs, Swaythling will ring fence the funds repaid to a keyworker recycling fund. Funds can therefore be recycled to provide more keyworker loans at a late date. The percentage loan to value mechanism will ensure that the value of the fund will retain value over time, providing that the fund is allowed to recycle with the minimum time loss.

Proposal- that the Hampshire County Council's recyclable funds be accounted for outside of the government's Keyworker Living Fund.

Clawback Clause

The standard Keyworker Homebuy Deed contains clawback provisions designed to ensure that a recipient of the Loan, remains a keyworker. Should they leave the job, and are no longer a keyworker (within the definitions laid down by the ODPM) then, they would need to repay the loan within 2 years of leaving the job. There are some exemptions to this rule at the discretion of the employer - for example to allow 3 years leave for family reasons or 1 year break for training elsewhere. There are also exemptions in cases of redundancy and retirement, and in cases of family breakup. Employers are notified when a keyworker has completed the purchase of a home with the benefit of the scheme, and are required in turn to notify Swaythling Housing Society when a keyworker leaves their qualifying form of employment.

Proposal - in the case of HCC workers, the Deed would need to be adapted under schedule 1 since the loan would be outside of the Keyworker Living Programme. The definition of keyworker would need to reflect HCC defined posts only. The statement in the standard Deed `this list may change over time' will allow for flexibility at a later date should the choice of keyworker jobs prove to be too narrow. HCC would need to provide a system to automatically notify Swaythling should a benefiting keyworker leave their job at a later date. HCC should be aware that this may be many years after the initial purchase of the home. Swaythling will set up a system to check annually with employers that keyworkers are still in qualifying employment.

Trained Staff and Clear Procedures

Swaythling Housing Society have developed clear procedures for the processing of applications including the following:

· application forms

· leaflets and posters

· guidance notes for solicitors and lenders

· standard Keyworker Deed

· a web site

· a well developed data base and IT system to produce standard letters

· developed procedures for dealing with Loan Redemptions, Remortgaging, Clawback and other post sale issues

In addition, there is a fully trained team of 4 officers and 15 trained customer service staff to field calls, process applications and log data. The Society deals with more than 400 keyworker enquiries each month and to date have completed more than 135 Keyworker Homebuy applications since April 2004, and 700 Starter Home Initiative Homebuy completions between September 2001 and April 2004.

Proposal - even though Hants CC may have only restricted funds to provide only a limited number of loans, the set up and management of such a scheme is very demanding. A scheme for Hants CC's keyworkers could easily be intergrated to the existing procedures with minor modifications. It needs to be pointed out that

Costs

The on cost allowance received by the Society from the Housing Corporation is £1,541 per unit.

Proposal - Draw down of the loan for each East Hants keyworker completion through the scheme would be managed by invoicing East Hants District Council for the amount of loan, plus £1,541 on costs allowance.

Tax Issues

Loans made on beneficial terms to employees are taxable benefits if they are made, arranged, guaranteed or facilitate in anyway by the employer. In addition Class 1a NICs (employer, not employee) are also payable on tax benefit. However, no tax or NICs are chargeable if the loans are made and arranged by someone with no connection with the employer.

Proposal - it is clear that Hants CC would not be able to facilitate this scheme themselves. Swaythling Housing Society would be well placed to undertake this scheme on their behalf but would need first to have clear definitions of the workers required to be targeted. Nominations of workers would not be possible but confirmation of employment status would be sought prior to acceptance to a scheme only.

Promotion of the scheme

Swaythling market the scheme and produce leaflets fliers and other marketing material. Adverts and press releases are frequently arranged to further promote the scheme.

Proposal - because of the tax liability, Hants CC would need to take care refer workers to the RSL for the provision of the scheme. Leaflets and other material can be produced with Swaythling's logo etc but there may be an additional cost implication for this as such leaflets may need to be bespoke.

Reporting

Monthly reports on the take up of the scheme are made to the ODPM, Housing Corporation Local Authorities and all participating employers.

Approval of scheme and Implementation

Proposal - should Hants County Council decide to enter into agreement with Swaythling Housing Society for the provision of Keyworker Homebuy Loans, the approval of the Directors and Board of Management will be required. The proposed implementation date is 1^st February 2005, subject to approval.