Housing Association Guide Part 1 - Appendix 5Privately Financed Schemes
Contents
1.01The DSD has a duty to supervise and monitor the affairs of Registered Housing Associations. This includes all activities, not just those involving publicly funded schemes.
1.02Article 13 of the Housing (Northern Ireland) Order 1992 requires all Registered Housing Associations to obtain DSD consent before a charge is taken out in favour of a private lender. Without this consent the transaction is void. Article 13 consent is a discretionary power and is not an automatic process.
1.03The DSD will need adequate time to scrutinise applications.
2.01Application to register a Statutory Charge:
Paragraphs (8) and (9) of Article 13 of the Housing (Northern Ireland) Order 1992 state:
(8) An application for registration of the statutory condition attaching to land by virtue of this Article shall be made by the Department as soon as is reasonably practicable after the acquisition of the land.
(9) For the purposes of paragraph (8), a registered housing association shall upon acquiring any land forthwith—
(a) Inform the Department of the acquisition, and
(b) Provide such information with respect to the acquisition as the Department may require.
The Association should submit:
- Two copies of an Ordnance Survey map, scale 1:1250 or 1:2500 as available, outlining the property to be acquired in red ink to allow the DSD to apply for a Statutory Charge in accordance with Article 13 of the Housing (Northern Ireland) Order 1992, Article 161 of the Housing (Northern Ireland) Order 1981 and paragraph 37 of Schedule 11 to the Land Registration Act (Northern Ireland) 1970.
- A copy of a letter from the Association’s Solicitor confirming that the land is now in the Association’s ownership, the date of completion and the consideration.
2.02Consent to Mortgage Stage
After the lending body has made a firm offer of advance, the mortgage agreement and a copy of the loan offer should be sent to the DSD to enable formal consent to the charge to be given. The mortgage agreement should make provision for endorsement by the DSD as follows:
“The Department for Social Development hereby consents under Article 13 of the Housing (Northern Ireland) Order 1992 to the within mortgage up to a maximum of £x.
______________________________
A Senior Officer of the Department for Social Development
Dated this day of 2xxx.”
Associations should be aware that the DSD will be reviewing the documentation simply for the purpose of deciding whether to give Article 13 consent. The issue of Article 13 consent does not imply that the DSD has endorsed or approved the documentation. The responsibility for assessing the risks associated with loans and development remains with the Association and more particularly the management committee. Private lenders will also need to make their own enquires, and satisfy themselves that any risk is acceptable to them.
These procedures apply to privately financed schemes either where there is no grant aid or where the grant aid is provided by a public body other than the DSD.
Schemes involving a combination of private finance and HAG, funded through the NIHE (DPG), will be dealt with under Part 2 of this Guide.
3.01Associations seeking private finance should know that the DSD in considering applications for schemes approval will normally apply the following criteria.
a. Legality: Associations should ensure that the schemes they are undertaking are:
i. Within the permitted activities of a registered housing association as defined in Articles 3 and 15 of the Housing (Northern Ireland) Order 1992;
ii. Within their objects as set out in their rules;
iii. Within their borrowing limits.
b. Financial viability: Associations should ensure that:
i. They will be able to repay mortgage loans and meet all costs of the scheme with no or minimal risk to publicly funded assets (by which is meant assets funded by Housing Association Grant or by any of those payments and loans listed in Schedule 2 to the Housing (Northern Ireland) Order 1992 under the heading “grant aided land”);
ii. The scheme represents reasonable value for money;
iii. Adequate provision is made for repairs and improvements;
iv. By undertaking a privately financed scheme they are not overstretching their reserves or risking financial instability.
c. Capacity/skills: Associations should ensure that:
i. They have the necessary skills/specialist knowledge and resources required to develop a privately financed scheme;
ii. They have the necessary resources to manage and/or market the scheme and that there is sufficient demand to ensure a maximum voids level of less than 4%;
iii. The needs of the people to be housed cannot be met adequately by private developers.
The DSD will expect the Association to confirm that the management committee is satisfied that the criteria listed in paragraph 3.01 above have been met before endorsement to the mortgage agreement is given.
Cost of Scheme – Capital Elements
(To be costed at anticipated outturn prices)
Site or Property Acquisition Costs
Legal Costs (including disbursements)
Pre-tender Works:
- Statutory obligations, e.g., conditions of planning permission; clearance of rubbish; tree lopping/felling/protection; safety requirements (including demolition of existing buildings) etc;
- Legal obligations contained in the conveyance, e.g., third party rights, etc;
- Insurance obligations, e.g., safety requirements concerning public liability; fencing, etc;
- Site investigation, e.g., trial holes, borehole tests, soil investigation, etc;
- Site survey;
- Demolition;
- Noise abatement tests, mineral surveys, other specialist reports, etc;
- Partial repair works prior to main rehabilitation works;
- Structural support;
- Securing and bricking-up;
- Re-routing of electricity cables;
- Advertising for contractors;
Main Contract Works:
- substructure, superstructure, siteworks;
Other Works Costs:
- electricity and water connection (and disconnection) charges;
- Contract performance bond premium;
- Other works costs not in main contract (e.g., separate fencing contract, site security);
Professional Fees:
- Architect, quantity surveyor, building surveyor, structural engineer, mechanical and electrical engineer and any other specialist consultants if applicable (including disbursements);
Value Added Tax on works, professional and legal fees
Valuer’s fees (including VAT)
Planning Application fees (including VAT)
Building regulation application and inspection fees (including VAT)
Acquisition and development administration costs (including VAT if provided by another association registered for VAT purposes) allowing for the additional administrative costs of negotiating private finance.
Clerk of Works costs (including VAT if provided by another association registered for VAT purposes)
Home loss, disturbance, decanting and redecoration costs
Furniture costs (including VAT)
Building society or other lender valuation and administration fees
Capitalised interest on development period finance.
Cost of Scheme – Revenue Elements
(To be costed for year one of income stream)
Loan Repayments - While not required for submission to the Department the Association should compare the loan repayment profile over the life of the scheme with other income and expenditure items, on varying assumptions, if low start finance is to be used.
Mortgage Protection Premium - If required by the mortgagee.
Management - Normal allowance levels, including higher management allowance, will be a guide but the Association should use anticipated actual costs based on experience if possible.
Day-to Day Repairs - Normal allowance levels, including higher management allowance, will be a guide but the Association should use anticipated actual costs based on experience if possible.
Cyclical Maintenance - Normal allowance levels, including higher management allowance, will be a guide but the Association should use anticipated actual costs based on experience if possible.
Major Repairs (and contingencies) Provisions - Current thinking on this would suggest, for new build schemes, 0.8% per annum of the construction costs and fees. For rehabilitation schemes, 1.0% of the reconstruction costs and fees.
Internal Redecoration Costs - Include where applicable.
Service Costs - Include where applicable and provide for renewals of plant, equipment and furniture that are additional to the basic structure of the dwelling.
Voids and Bad Debts - The usual 4% voids level (higher for hostels) can be used as a guide combined with the Association’s own experience bearing in mind the effects of rents, probably higher than those to be charged under traditional HAG funding methods.
Borrowing Fees - Unlikely to be charged in borrowing from normal retail lending sources.
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