Clause 265
Housing and Regeneration Bill
10:45 pm
Iain Wright (Parliamentary Under-Secretary, Department for Communities and Local Government; Hartlepool, Labour)
This important clause enables the Secretary of State to empower housing authorities to offer equity loans—interest-free loans which pay a percentage of the market value when the property in question is sold. Owners of flats in blocks, who are known as leaseholders, cannot maintain and improve the fabric of the building and estate grounds. Instead, their landlord does that and reclaims a share of the cost by levying major works service charges. Owners of ex-council flats bought under the right to buy or on the open market will remain as leaseholders and will therefore remain responsible, under the terms of their leases, for contributing to the cost of repairs, maintenance and improvements.
A survey by London councils suggests that up to March 2007, of 154,000 council leaseholders in 26 London boroughs, 9,100 have received or expect to receive major works bills for £10,000 or more. I have met hon. Members with regard to this who are concerned about leaseholders facing high bills for major works. Clause 265 widens the range of options that landlords can use to assist their leaseholders in paying such bills.
Section 450B of the Housing Act 1985 enables landlords at their discretion to offer leaseholders interest-bearing loans. The clause amends section 450C of the 1985 Act regarding the Secretary of State’s powers to make regulations. The Housing (Service Charge Loans) Regulations 1992 already allow housing authorities to offer loans for service charges on properties bought under right to buy. In specified circumstances, loans to the original right-to-buy purchasers are mandatory. Interest must then be charged, and administrative expenses up to £100 may also be charged to the borrower.
The regulations also give housing authorities discretion to offer loans to help with service charge bills on terms of their choosing to any of their leaseholders, but it is not clear whether they are currently able to offer equity loan terms, or whether they must charge interest.
A working group of London boroughs concluded in 2005 that if landlords had the option of offering interest-free equity loans, it would increase the likelihood that leaseholders would be able to pay the money that they owe. Interest-bearing loans may be unattractive to leaseholders because the proportion of interest to principal grows over time so much that the borrower becomes liable to repay twice or even three times the amount originally borrowed.
Let me give an example, albeit I have to admit an extreme one. If a leaseholder faced a bill for major works for £30,000 and there was a period of 15 years before the property was sold, at an interest rate of 7 per cent. the amount due would be £82,771—nearly three times the amount borrowed. However, with equity share loans, the amount to be repaid will depend on the movement of the market value of the property over the period of the loan.
If leaseholders are unable to pay what they owe, the landlord has to make up the difference. Although it is always open to landlords to take the leaseholder to court and obtain a judgment that can be enforced by a charge on the property, it is clearly preferable to all concerned if that can be avoided. It is in the interests of leaseholders themselves, and of taxpayers and tenants, that landlords can offer the widest possible range of payment options. The amendment to the regulations which may be made as a result of the clause will place no obligation on landlords. Instead, it will add to the range of options available to them to use if, in their judgment, the circumstances justify it.
The provision regarding valuation of the property will enable the Secretary of State to amend the 1992 regulations so that if a landlord and leaseholder agree to a loan on equity share terms, an impartial assessment can be made by district valuers of the market value both on commencement and eventual payment of the loan. Provision can also be made for paying for the district valuer’s services.
New clause 27 seeks to give local authorities and registered social landlords the power to buy a share—formally, an equitable interest—in flats that they have let on long leases. The power is to be used for the purpose of assisting the owner of such a flat to meet some or all of the service charges that he or she is liable to pay. The new clause fulfils the Government’s commitment in our statement to Parliament on 29 March 2007 to give landlords such a power. Under the new clause, the Government, or, in Wales, the Welsh Assembly, may make regulations that give landlords this power and also impose conditions where appropriate on how it will work in practice.
We have specified that the landlord must pay the purchase price by cancelling part or all of the service charge that the leaseholder is liable to pay. This is to ensure that the money is used for this purpose only. The purchase price will be a price related to market value that is acceptable to both the landlord and the leaseholder. Either party may ask the district valuer to determine the value. The regulations may specify, as I mentioned, that the district valuer’s costs in such cases will be met by the leaseholder and deducted from the purchase price.
I should make it clear that the power to buy an equity share is not mandatory. It will be one more way in which landlords can help leaseholders to meet their obligations, and entering into such an agreement will be entirely voluntary for both parties. The Government are not seeking to specify in detail any of the terms of the contract. It will be up to the parties to reach agreement, but we intend to provide a framework so that landlords have the necessary powers.
On the basis of the hardship that some leaseholders face as a result of high service charges, I am keen to help as much as possible. I have met representatives of London boroughs to discuss the matter and instructed officials to consider using existing resources, such as funding from the regional housing pot and the private sector renewal fund, to target and assist leaseholders who might not be able to pay their service charges by any other means. That is consistent with our aim that those funds should help those in need and on low incomes.
I have to point out, though, that many local authority landlords already offer a range of payment options, but if none of those appear suitable, landlords will be able to use the power introduced by the new clause to purchase equitable shares if they and the leaseholders agree that it is the best way to help the leaseholders meet their obligations under the lease.
The new power to purchase equity shares will be introduced by means of regulations, and amendment No. 132 ensures that the new clause will be commenced by order when the regulations are laid. I hope that I have made the situation clear and that the Committee will accept the new clause and amendment.