Homeswaps

Background

This page provides information on homeswap schemes, which are currently being run by several local authorities in areas of abandonment and low-value housing. The schemes operate to protect the common interests of owner-occupiers, lenders and local authorities where owners are obliged to sell their homes to the local authority (or other regeneration organisation) as part of clearance and regeneration plans for an area. 

Lenders may find that they are increasingly being approached by local authorities for their consent for borrowers to take part in these schemes, as it is likely to be used as part of regeneration schemes by the housing market renewal areas and others. A number of lenders have already nominated staff to deal with these specific queries.

We have worked with local authorities (LAs) and lenders who have been involved in these schemes on sample documentation which could be used in the early stages of a transaction. This should avoid the need for lenders to have to review a variety of different forms for different schemes. However, we recognise that changes may be necessary depending on the individual schemes.

Why is homeswap needed?

In some parts of England, a lack of demand for certain types of accommodation (often pavement-fronted pre-1919 terraces) has led to increasing abandonment of areas with a predominance of this type of housing. In turn, values have dropped dramatically, leading to negative equity and outright owners not having the capital to buy elsewhere.

Many LAs already have plans to reverse these trends in areas with low demand by redeveloping the areas affected. To achieve this, the people left in partially-occupied streets will need to move out to allow clear sites for redevelopment. Sustainable areas are created through the conversion of empty and poorly maintained properties into renovated owner-occupied houses.

How does homeswap work?

The home-owner living in a property affected by redevelopment, effectively exchanges their home for a renovated house nearby which the local authority has purchased and renovated.

The scheme works at several levels:

• It enables owner-occupiers with low-value homes and, in some cases, negative equity to remain owner-occupiers.
  
• It enables the local authority to clear and/or redevelop sites and improve the area for the whole local community.
  
• It provides a mechanism to buy empty properties in sustainable areas and facilitate further owner-occupation.
  
• All this can lead to values rising again in the area and there is already anecdotal evidence that this is happening.

How is homeswap funded?

The LA uses its own resources and grant funding to carry out the regeneration activities and, in particular, the costs associated with the homeswap. These costs include the renovation work to the new property and the associated valuation and legal fees.

The individual owner contributes the value of their existing home to the cost of the new homeswap property. The difference in value between the old and new house is covered by a land charge in favour of the local authority. This charge is repayable only on sale and reduces over the first five years of ownership. A lender’s mortgage remains a first charge over the property.

How does homeswap affect lenders?

• The lender agrees to allow the homeowner to 'transfer' their mortgage from their existing property to the new one.
  
• The lender retains a first charge over the property.
  
• The new home has a higher value which means that the lender’s asset improves, and negative equity can be reduced.
  
• Owners who would otherwise have had to ‘walk away’ from their mortgage and rent from the local authority after discharging only part of their debt, remain owner-occupiers with an improved asset.
  
• Local authorities are confident that values across the whole area will improve, reducing the negative equity of customers further afield than just those affected directly by redevelopment plans.

Sample documentation

We have produced sample documentation which can be used by LAs and lenders as part of the initial exchange of information in a Homeswap transaction. The aim is to try and streamline what information is required, so that lenders do not have to review different forms for each homeswap scheme. However, we do recognise that LAs and lenders may want to make some changes based on individual schemes.

Further information

Any lender who wants further information about the scheme or any LA who would like a list of lender contacts should contact the CML (info@cml.org.uk).