Help to Buy leaseholders can now sell homes at ‘cladding affected’ value, says Homes England

Now the new advice states that before selling or redeeming, leaseholders must now employ a “specialist valuer” who must consider the external cladding on a building and its impact on the market value.

The specialist valuer must be a member of the Royal Institution of Chartered Surveyors and agreed by Homes England. The government agency estimates that it could cost leaseholders more than £1,500 to employ these type of valuers.

In addition to checking the conditions of the property, the valuer will factor in the estimated costs of remediation work, who is responsible for the costs, and whether the leaseholder has any other means to pay them, for example through the government’s Building Safety Fund or an insurance claim to recoup costs.

A spokesperson for Homes England said: “For Help to Buy homeowners selling their property affected by cladding, their redemptions are managed on a case-by-case basis due to the complexity and the various nuance each case may present.

“The overarching processing principle is to ensure that the sale transaction is genuine and it is conducted at an arm’s length.”

The change in approach not only opens the door for leaseholders who have been barred from selling at a reduced price but could also potentially pave the way for leaseholders to fully redeem their loans at bargain rates, which could in turn, cost the government millions.

Leaseholders using the Help to Buy scheme can borrow up to 20% (40% in London) of the full purchase price of that home from the government. When they come to sell, the borrower must pay back that loan, with the amount owed based on 20% of the market value of that property at the time of sale.

Loans can also be redeemed if the borrower wants to stay in the home but ‘staircase’ their share to own more of the property. This is achieved by getting a valuation of the property and basing your redemption payment on the percentage you borrowed of that new valuation figure.

In the majority of cases, the market value increases in price, meaning that the loan amount that has to be paid back is higher and Homes England makes money. However, it can work the other way where the value of the property falls, and Homes England loses money.

Back in 2018 several leaseholders in the New Capital Quay development in Greenwich were able to virtually wipe out their Help to Buy loans after the Grenfell-style cladding saw the value of their properties drop from £500,000 to £50,000. In one case one woman paid just £10,000 to redeem her £85,000 loan, at a loss of £75,000 to Homes England.

There have been fears that the cladding scandal could result in Homes England losing millions, due to the impact impending remediation bills may have on property values.

However, this has not materialised, and a number of leaseholders who have attempted to redeem since then have been blocked by Homes England stating that redemptions can only be made at market value.

Homes England has previously told Inside Housing that it generally uses the unaffected value for the purpose of redeeming loans but that it would take into account specific circumstances in some cases.

However, this position seems to have now shifted, and a spokesperson for Homes England told Inside Housing: “The redemption value of Help to Buy equity loan is based on the market value of the property at the time, as determined by a RICS surveyor agreed by Homes England.

“The valuer is required to take everything into consideration, including cladding issues that may affect the building.”

When asked by Inside Housing what the new guidance meant for leaseholders who had previously tried to sell or redeem their loans, and whether Homes England would be offering them the chance to redeem again, the spokesperson said: “The cladding issue is continually evolving as the government works towards a resolution with industry stakeholders. We work closely with MHCLG and review our policies to ensure Help to Buy homeowners achieve a fair outcome whilst also protecting public funds.

“These redemption requests are being handled on a case-by-case basis, taking into consideration the unique circumstances of each case. We are not able to comment on individual redemption cases.”