6 Permitted uses of RCGF

6.1 General 

6.1.1 Grant Recycled from the RCGF will have the same Funding Conditions as if the scheme had been funded with SHG, although properties provided from the RCGF are not subject to the Right To Acquire under section 16 of the Housing Act 1996, except when RCGF was used in combination with the Disposal Proceeds Fund or new SHG.

6.1.2 Permitted Uses of the RCGF are:

1. activities for which the Agency could make Social Housing Grant available, except where a restriction is stated in this section of the Capital Funding Guide. For Restrictions, please see 6.2 below;
2. Flexible tenure, on the terms defined (see Paragraph 6.6);
3. works to stock within the boundaries of an Estates Renewal Challenge Fund (ERCF) Programme area, (but only if the Grant in the RCGF arises from Recoveries related to property included in the ERCF Programme for that area)
4. Land acquisition

 

6.1.3 RSLs may repurchase homes (where 100% has been sold) where these have been:

• funded through Social HomeBuy or New Build HomeBuy post-April 06 (the HomeBuy lease gives the  RSL a 21 year right of pre-emption, i.e. first refusal to buy the property before it goes on the open market);
• provided through a shared ownership lease AND designated for rural repurchase;
• bought under RTB or RTA after 1 Jan 2005 (the Housing Act 2004 gives a 10 year right to repurchase properties sold under RTA or RTB.)

6.1.4 Priorities

• Expenditure is expected to provide new affordable housing ( this can include new build, purchase of existing satisfactory and rehabilitation)
• expenditure for uses other than providing new affordable housing will require approval from the Regional Investment Teams
• all expenditure must align with relevant regional housing strategies

6.1.5 Where RSLs are using RCGF to fund flexi-tenure in exceptional cases, according to the criteria in section 6.6 below, Agency approval is not required. 

From October 2008 until March 2011 use of RCGF for flexi-tenure purposes has been added to the list of priorities detailed in 6.1.4 above, where it will prevent repossession and homelessness provided the criteria in section 6.6 is met.

6.2 Restrictions to Permitted Uses

6.2.1 RSLs that are not Equity Loan Providers must not use RCGF balances to support Open Market HomeBuy.   

6.2.2 Grant from receipts generated from the repayment of an Equity Percentage Loan made under Open Market HomeBuy procedures prior to those introduced from April 1st 2008 (or its predecessor products), may be credited to the RCGF and spent on Permitted Uses, UNLESS:

The scheme generating that receipt was approved from within the Key Worker Living programme (or its predecessor programme, the Starter Homes Initiative) in which case, unless the RSL is a Key Worker Living HomeBuy Agent, the Recovered Grant has to be repaid, not Recycled.

6.2.3 RSLs that are Equity Loan Providers may use RCGF balances to support Open Market HomeBuy in accordance with the terms agreed with the Corporation and the relevant clauses in their Equity Loan Contract

6.2.4 Further restrictions on Permitted uses:

1. Funding Social HomeBuy or Right to Acquire discounts;
2. Work to existing stock that is ineligible for funding because of the terms under which it was originally financed.  Examples are major repairs to general needs projects funded under the Housing Acts 1988 and 1996 and stock transferred from a local authority;
3. Do-it-yourself shared ownership (DIYSO) schemes
4. Day to day and cyclical maintenance
5. Tenant Incentive Schemes

6.2.5  RSLs must consult the relevant Regional Investment Team if unsure about a proposed use of RCGF.

6.3 Expenditure from the RCGF

6.3.1 The properties developed or repaired with money from the RCGF must comply with the Corporation’s Regulatory Code and regulatory requirements as if the scheme had been funded with SHG.

6.3.2 When developing property with RCGF the RSL can choose how much RCGF to use up to a defined maximum amount.  For comment on why the RSL may choose to use less than the maximum. Click the asterisk for more information.  

 

6.3.3 The maximum amount of RCGF that can be used on the scheme is the difference between the total capital costs of the scheme (i.e. the amount capitalised on the balance sheet) less the sum of any sales receipts (if applicable) and the loan/mortgage repayments that the RSL is able to support from the rental income produced by the properties (if applicable).

6.3.4 Where an RSL opts to repurchase properties where 100% has been sold in accordance with the Requirements of 6.1.3 (and this offers value for money and fit with regional investment priorities) this must be funded from their own resources and where necessary RCGF.

6.3.5 The RSL will be able to make use of capitalised rental income from the newly created rental unit.  The RSL may therefore debit from its RCGF an amount up to the purchase price minus an amount equal to the capitalised rental income and plus an allowance for administrative expenses (use the staircasing sales allowance current on the date of completion of the repurchase.)

6.3.6 The Agency’s prior written approval is not necessary for the use of the fund or the calculation of the amount to be withdrawn from the RCGF.

6.3.7 The RSL can choose whether to debit the full amount of RCGF to be used on the scheme at the first Payment Milestone (such as start on site), or to debit the amounts in a way which matches Grant Claims.

 
6.4 Housing Needs – Locality & Priority

6.4.1 RSLs must apply their RCGF in accordance with the investment priorities of the relevant Regional Housing Strategy (RHS) and expenditure is expected to be for the provision of new affordable housing.

6.4.2 An RSL may make the case for an alternative use to:

1. meet other strategic priorities;
2. to ensure the RSL remains financially viable.
    

This case will need to be agreed by the relevant Regional Investment Team.
 
6.4.3 Investment in new social housing is now shaped primarily by regional and sub-regional (or housing market area) strategies.  As a minimum, spending must be within the Region within which the credit to the fund was generated AND in line with the relevant Regional Housing Strategy. For details on how this can be achieved by two or more RSLs collaborating on out-of-Region schemes follow the asterisk  

 

 

6.4.4 However, if the RSL wishes to spend Recycled Grant in a different sub-region from that in which it originated, they must consult with the Regional Investment Team prior to entering into any commitment that is to be fully or partly funded from RCGF.  In considering such proposals our regional teams will take into account the clarity of sub-regional definitions and importance given to sub-regions in their region. 

6.4.5 If the RSL wishes to spend Recycled Grant in a different Local Authority from that in which had originated, they must inform the Regional Investment Team prior to entering into any commitment that is to be fully or partly funded from RCGF. RSLs’ internal records of Recoveries will therefore need to record the originating LA area in which the credit to the fund was generated

6.4.6 RSLs must also consult the Corporation regional team if a credit to the fund generated in a rural area (defined as population below 10,000) is to be spent in a non-rural area.  RSLs’ internal records of Recoveries must therefore record cases where the credit to the fund originates in a rural area.

6.5 Combining RCGF with SHG, Disposal Proceeds Fund and Other Finance

6.5.1 RSLs may combine RCGF with DPF and new SHG in the following ways:

• combine RCGF with SHG in schemes receiving an allocation within the National Affordable Housing Programme (NAHP);
• combine DPF, RCGF and SHG in schemes receiving an allocation within the NAHP.  Such schemes could only be those that are permitted uses of the DPF (for DPF Permitted Uses, refer to  DPF sec 3).
• Combine RCGF and DPF (but no SHG). Such schemes could only be those that are permitted uses of the DPF (for DPF Permitted Uses, refer to DPF sec 3).

6.5.2 Any scheme qualifying for less than 100% Capital Grant will require a proportion of the costs to be met with private sector loans or a contribution from the RSL’s own resources.

6.5.3 Resource inputs to a scheme from RCGF must not normally exceed the level stated within the relevant bid (including if zero.)  Any proposal to add additional resources from RCGF to an existing allocation must be agreed with the Corporation’s regional team in advance. 

6.6 Flexible Tenure Through the Recycled Capital Grant Fund

6.6.1 Flexible tenure is a permitted use of the RCGF in exceptional cases.  It is a last resort option to enable an RSL’s shared owner (NOT an outright owner) experiencing severe financial difficulties to remain in their own home despite changes in their financial circumstances.  It is aimed at preventing repossessions and the loss of the home. It is not a means of allowing the shared owner to restructure their debts or otherwise improve their financial position.  For a definition of Flexible Tenure, eligibility details and what is meant by “last resort”, follow the asterisk.  

 

6.6.2 RSLs cannot use RCGF funds to help shared owners release equity for any other purpose than avoiding threats to their ability to remain in their home. RCGF funds cannot be used to allow shared owners to repay debt other than mortgage debt and arrears, or to buy other goods or services.  This is NOT Flexible Tenure.
 
6.6.3 Public funding of Flexible Tenure is confined to the RCGF.  Social Housing Grant (SHG) or the Disposal Proceeds Fund cannot fund flexible tenure. 
 
6.6.4 Under Flexible Tenure, the RSL must repurchase enough equity to reduce the leaseholder’s total housing costs to a level which they, and the RSL, are confident is manageable in the long-term.
 
6.6.5 This can include repurchasing sufficient equity to clear the mortgage, pay off arrears of interest and principal on the mortgage, and reduce mortgage payments to nil.
 
6.6.6 There is also the option of full re-purchase, under which the shared owner becomes an assured tenant of the RSL.  However, once a property has been re-possessed by the lender, Flexible Tenure ceases to be an option. For a cautionary note follow the asterisk.  

 
6.6.7 Where an RSL does offer Flexible Tenure, its policy and procedures should be published and made available to all shared owners in its property. RSL should also ensure they retain any documentary evidence in support of their decision to use RCGF to fund Flexible Tenure.
 
6.6.8 For any form of equity repurchase, the RSL should ensure that any offer is acceptable to the shared owner’s mortgagee, and the RSL’s own lender.  The latter may require a revolving credit facility.
 
6.6.9  The same general procedures apply to downward staircasing as for upward staircasing, i.e. the maximum amount payable will be the appropriate percentage of the current open market vacant value determined by an independent qualified valuer.
 
6.6.10 It will most likely be a condition of the shared owner’s mortgage that sale proceeds are paid direct to the first mortgagee.  The RSL’s solicitor will advise on this, but it would avoid any risk of misuse of the money.  The shared owner must pay for the valuation and his/her own legal fees.  In practice, this may be a deduction from the payment to the shared owner or the mortgagee.
 
6.6.11 The money is drawn down from the RCGF on the completion date of the legal transaction.  
 
Debit from RCGF = (staircasing sales allowance) + (payment to the shared owner or the mortgagee x 70%).
   
 Use the staircasing sales allowance at the level current on the date of completion of the Flexible Tenure transaction.  
 
6.6.12 The resulting amount of public subsidy (Housing Association Grant or SHG plus Recycled Capital Grant) attributable to the property must take into account any deferred Recovery of HAG or SHG in the same scheme (see the worked examples below).
 
6.6.13  The resulting Deemed Loan Debt (DLD) will be the outstanding balance of the original DLD plus the new DLD attributable to the repurchased part of the property (i.e the 30% of the payment to the leaseholder that was not funded by RCGF).
 
For a worked example click on the asterisk.   

 
 
6.6.14 When a subsequent upward staircasing of the property occurs, the normal staircasing procedures should be followed, treating the RCGF money as if it were SHG.  If necessary, further Flexible Tenure transactions may be permitted should the shared owner’s financial situation deteriorate further, even to the extent of a complete repurchase of the property.
 
6.6.15 Where a shared owner staircases down to a lower level of equity, the terms of the existing lease will continue, including the right to staircase up again.
 
6.6.16 Whenever the shared owner staircases downward or upward, the rent should be adjusted pro rata for the changed percentage rented, and comply with all relevant rent policies.
 
6.6.17 Where a shared owner becomes an outright tenant, the shared ownership lease must be formally terminated and an assured tenancy agreement entered into on the same terms as for any other new tenancy agreement for rented housing let by that RSL.
 
6.6.18 The ex-shared owner will not have the RTA because the repurchase will be funded by the RCGF, not SHG.  As a tenant s/he may, if the tenant’s circumstances improve, be eligible for any discount or incentive scheme if offered by the RSL, such as Social HomeBuy with any eligibility period starting from the date of this new tenancy.

6.7 Land Aqcuisition

6.7.1 RSLs may use funds from the RCGF to acquire land where the intention is to develop the additional supply of affordable housing.

6.7.2 RCGF may also be used to acquire land  for market housing schemes which will include an affordable housing element . RCGF should be attributed pro-rata to affordable housing subsequently developed and shown as an RCGF input at bidding stage)

6.7.3 RSLs will be required to begin development on any land purchased with RCGF within 5 years of purchase. If Start on Site has not progressed after 5 years RSLs will be required to pay back the RCGF to the Agency, it cannot be re-credited back into the RSLs RCGF. 

6.7.3 RSLs are not to use RCGF to acquire land for speculative gain.

 

6.8 Management and Maintenance of New Units Produced from the Recycled Capital Grant Fund

6.8.1 Eligibility for SHG to fund major repairs in respect of RCGF funded units is the same as for units initially funded with SHG, i.e. Supported Housing units qualify but the RSL has to finance repairs to other units itself.
 
6.8.2 If the RCGF was spent on major repairs to a pre-HAG property, a 1985 Act property, or a Supported Housing property provided under the Housing Act 1988, that property would remain eligible in principle for major repairs SHG.
 
6.8.3 Where applicable, Property provided from the RCGF could be sold under Social HomeBuy or on the open market. 
 
6.8.4 Properties provided from the RCGF must be made available to local authority nominees in the same way as property provided with SHG.