Government drops Homebuy stake to 25%

The government today ignored the advice of lenders by watering down its proposals to allow 300,000 social housing tenants the chance to buy a stake in the value of their home.

In the run up to this year's general election, ministers promised that tenants would be given the chance to buy at least a 50% share in the value of their home, with the remainder staying with housing associations.

Housing associations, which are concerned about losing their assets under the scheme, claimed this was too high a stake and would hamper their efforts to build more homes.

Under changes to the detail of the Social Homebuy scheme announced today, the government has agreed to lower the minimum stake to 25%. Housing associations will also be allowed to charge rent at 3% of the equity they retain.

The Council of Mortgage Lenders claimed that such charges would make the scheme unaffordable and that the complexity of the arrangements would put people off. In its response to earlier proposal it warned that the benefits of the scheme would only be realised if people could buy at least 50%.

On a home worth £200,000, those buying a 25% stake will be charged up to £86.54 rent a week on the share they don't own, in addition to mortgage payments on the share that they buy.

The National Housing Federation, the trade body for housing associations, estimated that on this example the cost of the scheme would still be £117 a week cheaper than buying outright.

The government today said it had to balance affordability for buyers with the need to protect housing associations finances.

Announcing the changes, the government's housing spokeswoman in the Lords, Baroness Andrews, said: "We want landlords to be able to use the proceeds to make more social lets available and ensure that the scheme does not have a detrimental impact on social-rented provision."

The scheme will be piloted by the Guinness Trust housing association.

NHF chief executive David Orr welcomed the changes. "We are delighted that our negotiations with government have led to the development of Homebuy so that it genuinely reflects the needs of prospective buyers and the housing associations who will deliver the service."

Peter Williams, deputy director general of the Council for Mortgage Lenders said he was relaxed about the changes. "You have to question what the value of a low stake is worth, but lenders already have mortgages on 25% shares. If they are happy I'm happy."

The revised details of the scheme came on the day when a major mortgage lender said it was pulling out of a related scheme to help first time buyers purchase a share in new housing.

Abbey said it would not be taking part in trials of Open Market HomeBuy, which would allow people to purchase a 75% stake in new homes. It said that the limited size of the trial and investment in systems development meant it was not cost effective.

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