Weak uptake of Voluntary Right to Buy pilot
Six months after the ballot for the Voluntary Right to Buy Midlands pilot closed, reporter Tim Clark takes a look at the progress to date
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Uptake of a government-backed pilot across the Midlands trialling a roll-out of the Right to Buy to housing association tenants may fail to meet initial government expectations on volumes, Social Housing understands.
The two-year Voluntary Right to Buy (VRTB) pilot, launched in the Midlands on 16 August 2018, is supported by a pledged £200m of government support, which had been expected to fund the discounted sales of around 3,000 homes. It followed a smaller initial pilot with just five housing associations.
Tenants of housing associations participating in the Midlands scheme needed to apply via a ballot by 16 September 2018, with the scheme itself due to complete in spring 2020 to allow people adequate time to complete the purchase of their properties.
According to the Ministry of Housing, Communities and Local Government (MHCLG), more than 9,000 households registered for the ballot administered by the government in August 2018.
Of these, 6,000 tenants were allocated a unique reference number (URN), which allowed them to apply to their housing associations – twice the number of sales the pilot could fund. This, the MHCLG said, was because “we know from the scheme for council tenants and the initial pilot that a high number of tenants who make an application may not go on to complete a sale”.
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Slow progress
But the numbers successfully converting to a sale may be even lower than anticipated. Executives at a number of housing associations across the Midlands have told Social Housing that they do not expect the pilot to come close to 3,000 sales by its close in 2020.
One provider said that as few as 10 per cent of applications in some areas had led to a successful purchase.
The finance director of another housing association told Social Housing: “Progress has been slow. I’d certainly be concerned whether we are going to hit the targets.”
Referring to the idea of VRTB as “a barmy scheme to begin with”, the director said that the scheme’s “bizarre golden ticket approach” had led to a lot of interest from tenants but few sales.
“[The government] shouldn’t be surprised that they didn’t or won’t hit the numbers; they should have listened to the sector when [it] said they would get a lot of interest but not a lot of completions.”
The director added: “[The expectation of sales] comes from a London-centric view that there are hundreds of people living in social housing who can afford to do something else, but just giving people a discount doesn’t mean they can suddenly get a mortgage.”
A fellow finance professional involved in the scheme for a different provider said: “I’d be surprised if the pilot gets rolled out nationally; the numbers as they have been make it difficult to build a case to take this across the country.”
Tenants successful in the ballot were awarded a URN that could then be used to apply to their housing associations.
“In terms of systems and process, the trial has worked OK” – Rob Griffiths, Longhurst
Figures from Homes England provided by the MHCLG showed that by 12 March 2019, 3,623 applications had been received by housing associations from tenants who had received URNs.
The MHCLG highlighted that this figure relies on housing associations putting the data into Homes England’s IT system, and the MHCLG does not collect data on how many of those applications have been successful.
Homes England directed Social Housing’s queries to the MHCLG.
One senior member of staff at an association involved in the trial said: “The MHCLG are going to struggle to hit their target. Although the ballot built in leeway, the conversion rate after affordability checks, people in rent arrears or other issues is low. I don’t think they will make the 3,000 [sales supported by the trial].
“The MHCLG is going to have to look at re-running the ballot – or go back to the 30 or 40 per cent of people who didn’t get [a URN] and ask them if they still want to apply.”
The deputy chief executive and chief financial officer of a different provider – Rob Griffiths of Longhurst Group – told Social Housing: “In terms of systems and process, the trial has worked OK; in terms of overall numbers it hasn’t hit the level. To hit the 3,000 [mark] it will need another iteration [of the ballot].”
According to Mr Griffiths, Longhurst’s tenants made 215 initial applications, of which 137 received a URN. Of these, seven had completed by 1 April, and based on live figures, Mr Griffiths estimated that the number of completions by the end of the scheme in 2020 was likely to be around 50.
He added that, while Longhurst is using the porting approach on some properties, it had not had any completions using this method so far.
Boris Worrall, chief executive of Rooftop Housing Group, said that he had seen buoyant interest in the scheme, however he agreed that the conversion rate was low.
“There is quite large variation in demand for Right to Buy across the Midlands; the defining factors seem to be the different housing markets,” he said. “There is broadly stronger demand in popular and higher-value market areas and lower demand in the lower end of the housing market.”
According to Mr Worrall, Rooftop operates in a high-demand area where house price affordability to average earnings in places such as Wychavon are as high as 11 to one, which is the highest in the Midlands.
He added: “We had 140 people apply for the Right to Buy, of which 79 got through the initial screening process. This transferred into 49 allocations – 13 of which we expect to complete in the next six to eight weeks.”
Social Housing understands that appetite for the trial has fluctuated across different localities where the trial has operated.
The property manager of another association said: “In some local authority areas we saw no take-up at all, as I think people just weren’t aware of it [the trial]; in other areas we got 10 applications on one estate as it’s obvious people have been talking to each other about it.”
The manager said that the organisation had yet to finalise a completion despite “hundreds” of initial applications, saying that the ‘portability’ of sales had been a particular problem. They anticipated that approximately 100 sales would be completed by spring 2020.
The ‘porting’ of properties is a new approach being trialled by the scheme, whereby some homes are exempt from sale, and applicants living in them can ‘port’ their application on to an eligible property.
The manager said: “One of the main reasons for cancellation was that we had to tell many applications that, because the scheme was voluntary and not statutory, they could not buy the property they were in, but another with a discount.
The Voluntary Right to Buy explained
- Discounts for eligible HA tenants are at the same rates as local authority tenants in the statutory Right to Buy scheme (between 35 and 70 per cent of the value of the property, to a maximum of £80,900 – whichever figure is lower)
- Eligibility is determined by the government, with discounts funded by the government’s £200m pilot scheme
- HA boards have the final decision over which homes to sell, with the presumption that they will sell a tenant their current home if possible
- Where they decided not to do so, the government compensates HAs to apply the discount to an alternative property – known as ‘porting’
- ‘Flexible one-for-one’ replacements are incorporated, meaning for every Voluntary Right to Buy sale, a new affordable property will be built – overall, meaning some HAs will replace at a ratio greater than, and some lower than, 1:1
“We found that people only wanted to buy the homes they lived in. They felt they were offered the chance to buy a house and then found out there were a lot of restrictions in place.
“People told us that they had schools, kids, families and work and don’t want to move 20 miles up the road – you have to uproot your whole lifestyle. Portability was a particular issue.”
Demand in some areas, however, has been robust. According to figures provided by Orbit Group, the provider received 378 applications out of 761 URNs allocated to Orbit tenants. Of those, between 200 and 250 are forecast to proceed to sale, based on a take-up rate of 65-70 per cent. Fifty properties are at the valuation stage, and Orbit has offered 30 properties so far. The association said that to date, 30 customers had withdrawn from the process.
Paul Richards, customer services director at Orbit, said: “Demand for the Voluntary Right to Buy has been high, with 378 applications received. Teams have been working tirelessly to ensure applications are processed in a timely fashion and we have brought in extra resources to support the process.
“Our portability process has been tested up to the point of customers viewing an alternative property that matches their requirements. We are expecting around 20 completions to take place early in the new financial year, with the bulk between June and December 2019.”
Evaluating the pilot
The National Housing Federation (NHF) agreed a deal for the voluntary extension of the Right to Buy to housing association tenants in 2015, starting with a pilot involving five associations.
Under the agreement, each home sold through the VRTB would be replaced one-for-one in the sector (at a minimum of affordable rather than social rent) but not necessarily in the area in which the original home was sold.
For Mr Griffiths, the current VRTB pilot “hasn’t caused a financial burden to us, and given the numbers so far we don’t expect this to be a problem in terms of the cost of replacing units”.
“Associations are working hard to manage applications from residents” – James Prestwich, NHF
The latest Statistical Data Return from the Regulator of Social Housing captures 82 VRTB sales from the early pilots for the financial year to March 2018, of a total of 5,224 sales through the Right to Buy, Preserved Right to Buy and Right to Acquire schemes.
A spokesperson for the NHF told Social Housing that, once completed, the Midlands pilot will be “evaluated fully – the government can then use this analysis to inform any national roll-out”. James Prestwich, head of policy at the NHF, said that the pilot had “plenty of moving parts, including decisions on eligibility and the ballot administered by the MHCLG, on top of all the usual work that goes into selling a home”.
He added: “Housing associations are working hard to manage applications from residents as they come in, with a commitment to replace every home sold with a new affordable home.”
Asked whether the NHF could support the removal of the option for housing associations to select which properties are put forward for VRTB, if porting was found in the pilot to be contributing to the low sales completions, Mr Prestwich said: “The discretion of housing association boards to decide which homes they will sell is a key part of the VRTB deal made between the sector and the government.”
He added: “Testing the mechanism that allows residents to ‘port’ their discount to a different home is a key aim of the pilot.”
A MHCLG spokesperson said: “We are pleased that the first sales are taking place under the Voluntary Right to Buy Midlands pilot, which will give thousands of tenants in the Midlands the opportunity to realise their dream of homeownership.”
The MHCLG added that applications were “progressing well” and that “several hundred applications have already reached the formal offer stage”, which were expected to “convert to sales in the following weeks and months”.
Terrie Alafat, chief executive of the Chartered Institute of Housing (CIH) – which has called for a suspension of local authority Right to Buy – told Social Housing: “Given the scale of housing need and the wider reductions in the social housing stock we’re currently facing, a slower-than-expected progress on VRTB is perhaps not the largest challenge the sector currently faces.”
The CIH’s analysis of figures recently released by the MHCLG showed that, where local authorities’ Right to Buy sales were concerned, from October to December 2018, 2,645 dwellings were sold, while only 1,038 replacement dwellings were started on site or acquired – 32 per cent lower than the number started or acquired in the same quarter in 2017/18.
Quarterly Right to Buy sales are not quite at the levels seen before the financial crisis, but the Q3 2018/19 figure is about four times higher than in 2011, before the government refreshed the policy of Right to Buy with the introduction of increased discounts from April 2012.
Based on reported volumes, for housing associations participating in the Midlands pilot, replacing units may not be so great a concern.
Voluntary Right to Buy: the story so far
- May 2015: Majority Conservative government elected on a manifesto including commitment to extend Right to Buy to HA tenants.
- September 2015: NHF makes offer to government to extend Right to Buy to HAs via a voluntary rather than statutory approach - the Voluntary Right to Buy (VRTB)
- October 2015: Government accepts the offer. Under the agreement, all homes sold to tenants will be replaced on a one-for-one basis
- 2016-17: Initial pilot runs with five housing associations across England
- November 2017: Autumn Budget confirms a larger regional pilot will take place in the Midlands
- August 2018: Midlands pilot launches, with the ballot open for one month until 16 September
- March 2019: First sales under the new pilot complete
- Spring 2020: Pilot is due to finish
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