2  Funding Principles

2.1 General

2.1.1 The total subsidy (SHG, RCGF) eligible for a Sales scheme is fixed when Bids are accepted by the Agency.  Subsidy may be recalculated if there have been significant changes to the unit mix and type of scheme since Bid stage. See also sub-section 6.2.

2.2  Financial Viability 

2.2.1  It is expected that the proposed sale and rent income will have been considered and that, in the long term operational costs including the repayment of loan principal and interest can be met. Any initial revenue deficits must be within RSLs general capacity.  The TSA's Regulation teams will monitor the effect of development and the RSLs' general financial status.

2.3 Sales Valuations

2.3.1  RSLs must obtain valuations from a qualified independent valuer at the initial sales stage and on staircasing.

2.3.2  Initial sales must be based on the Market Value  of the property .
 
2.3.3  RSLs must instruct the valuer to provide a valuation on the following basis:

• assume the sale is for the freehold interest, or where the RSL’s interest is leasehold,
• a 99 year lease or such lesser term of years as the RSL holds;
• assume the sale is an open market sale;
• assume a shared ownership lease has not been granted;
• assume the sale is to be with vacant possession. 

and for Staircasing valuations:

• disregard the tenant's improvements and failure of the tenant to keep the property in good repair;
• any service charges or improvement contributions payable will not be less than the estimates contained in the landlord's offer (if such an offer was made) ;
• for freehold property, the landlord is selling  a freehold interest with vacant possession;
• for leasehold property, the landlord is selling with vacant possession for the appropriate term, i.e. not less than 125 years (where applicable) or a term expiring 5 days before the term of the landlord's lease is to expire.

2.3.4 Where RSLs sets sale prices above the valuation, they must:

1. document the reasons and keep a record on file for audit purposes and
2. satisfy themselves the price remains within the means of the intended client group.

2.3.5  If RSLs wish to reduce prices below the valuation they must:

1. have the prior agreement of the Agency (agreement will NOT be given where the discounted price is below the cost of providing the homes)

2.3.6  Validity Period for a Valuation

Where no validity period is given for the valuation it will be assumed that the valuation is valid for 3 months. When an offer is made on a property, the valuation current at the time of the offer will be assumed valid for three months from the date of the offer.

2.4  Rents and Service Charges 

2.4.1  RSLs are required to provide rents and service charge information for shared ownership schemes and must keep details of rents, including service charges, on file for Compliance Audit purposes.
 
For more detailed Requirements see Section 4.

2.4.2  RSLs are expected to propose levels of rents that are considered affordable to potential client groups.
 
2.4.3  An RSL’s proposed rent as a percentage of unsold equity is set at Bid stage.  RSLs are then required to maintain the same percentage through to completion.

2.4.4 RSLs must aim to achieve an average Rent level of 2.75% of the value of the unsold equity across all shared ownership schemes but   it must not exceed 3% for any individual scheme.

2.4.5  Annual rent increases are to be limited to RPI plus 0.5%, using the September RPI figure published annually.
 
2.4.6  The level of service charge must be affordable for the intended client group and not vary from the proposed service charge at bid stage.
 
2.4.7  Unacceptable increases could lead to SHG being withheld until the rents including HB eligible service charges are brought in line.

2.5  Consents 

2.5.1  As shared ownership leases are generally exempt from the need for Section 9 consent, there will be no need to apply to the Agency for consent to dispose.  Disposals under the Rehab for Outright Sale option are covered by category 1d of the General Consent 2008.  Any shared ownership sales that cannot be classed as exempt (e.g. because of low rent) would be covered by category 1a of the General Consent 2008.

2.6  Grant  

2.6.1 RSLs may use SHG and RCGF funds for shared ownership schemes, on condition that the scheme is consistent with the RCGF Permitted Uses.
 
2.6.2 RSLs may combine SHG and RCGF in one scheme (on condition that the scheme is consistent with the Permitted Uses of all forms of Grant), but must declare the total amount of Grant to be used at Bid stage. This will allow the Agency to assess the value for money of the bid.  RSLs cannot draw additional Grant from the RCGF to contribute towards the costs of the scheme without prior approval from the Agency. 
 
2.6.3 For details of how to claim Grant, and Payment arrangements see Finance, section 3.