One of the unexpected pleasures of writing these Profiles of Social Stock Exchange member companies is the continual discovery of courage in the face of adversity; the discovery of people, and companies, trying and succeeding at ethically creditable enterprise where it’s most needed, where it’s most overlooked. A fine case in point is the London Rebuilding Society (LRS) – which is in the process of rebuilding itself and, in so doing, is tackling a largely forgotten social issue.
The LRS was established in 2000. Naomi Kingsley, the CEO, tells me that she “originally set it up as a social finance institution. It’s always been about access to finance, which it still is.” Its home improvement scheme for older people is perhaps what it is best known for, and it’s this part of the business that underpins its main ambition today.
Private sector homeowners occupying decaying houses, yet who have no means of accessing finance to render their homes of a decent quality, go under the radar when it comes to considering social problems. The assumption can be that, as private home owners, they are well off and need no special attention. But this is an incorrect assumption, as Kingsley points out, by laying out the recent history of the LRS. “The home improvement scheme started in 2003, prompted by the council of the London borough of Newham, which had a huge number of elderly people living in pretty desperate circumstances – in homes which were cold, damp and often unsafe, causing stress and anxiety, and often exacerbating existing health conditions. We did a feasibility study for Newham and raised money to test out our scheme. Between 2007 and 2012 it successfully ran as a demonstration project,” says Kingsley. LRS has moved on since then and is gearing up to promote its home improvement scheme much more widely, starting in London.
“The home improvement scheme is for private sector older home owners who can’t access finance from the private or public sector. The main product that’s been available to people in this position if they can’t re-mortgage or get an additional mortgage is equity release. In the past equity release has gained a bad name; now it’s a pretty good product, very heavily regulated and with a lot of protection for those who use it. The difficulty with equity release” says Kingsley “is not the people requiring the loan, but the certainty that the home improvements done to the property will enable the lender to get their money back in the end.” If, say, your property is valued at £300,000 and the necessary work and loan taken out is £75,000, the lender needs to know for certain that the property value will increase by at least that much. And lenders may not have confidence that homeowners will get the work done to the necessary standard to ensure that property indeed has a market value of that £375,000.
Says Kingsley: “Up till now there has been no standard equity release or other commercial funding available for bringing dilapidated homes for older people to a decent standard. Lenders will not release funds in the form of a lifetime mortgage against the property, because of the dilapidated condition of the house.”
How big a problem are we talking about? Figures from the LRS, based on UK government data, suggest that there are 100,000 vulnerable owner-occupiers over the age of 65 living in non-decent homes in London. The designation ‘non-decent home’ is not subjective; there are objective requirements for public sector housing to be categorised decent. Of that 100,000, a fifth urgently require significant work done to them to meet decent home standards, according to government figures. These are the ‘equity-rich, cash poor’ of our society; 67% of older people living in poverty are owner-occupiers.
Nor is this just a personal family or individual matter; the privately-owned housing stock, much of which dates back to Victorian times, is decaying; about £137 billion of housing stock in London is owned by over 65s who are mortgage-free, a further £137 billion in the south-east. According to the 2010-11 English Housing Survey almost six million homes (27% of the total) failed to meet the Decent Homes standard; 87% of those were in the private sector. So to neglect this is to build up costly problems for future generations.
“When our London demonstration project completed in 2012 we started looking around for other forms of finance. We then started looking to partner with an existing provider. We do all of our bit – the hand-holding, supervise the work, and handle the post-work care, which can be incredibly time-consuming; there’s no way a commercial organisation is prepared to do that. Then there is the financial advisor aspect, totally regulated. And then there is the financial product aspect, again all totally regulated,” says Kingsley. After an aborted arrangement with one financial partner, LRS started talks with Legal & General, a big fish in the equity release world, two years ago. “We are about to complete a proof of concept small-scale scheme with L&G. They need to know that all the regulatory requirements are fulfilled and that they know it can work. They’re very happy with progress so far, but there’s more to do before we can actually launch a product to address this need on a larger scale,” says Kingsley. “The potential social impact is phenomenal,” she adds, “and there’s a genuine market for this to go mainstream.”
The regulated ‘lifetime mortgage’ that Legal & General would provide under this pilot scheme, to fund the repair and refurbishment of the property, would set the ball rolling for LRS. To take out this type of mortgage you would have to be 55 or over, with no outstanding mortgage, or a mortgage which can be cleared from the lifetime mortgage. Once LRS see the home, and meet the homeowner and determine the condition of the property and their eligibility, and ensure that the property is remediable, LRS refers the owners to a reliable financial advisor. This may result in a proposal being made to the owners which they are at liberty to follow-up. LRS then carries out a “decent homes” survey, providing a detailed breakdown of costs and expenses to the advisor. If the homeowner wishes to seek a lifetime mortgage, on approval and acceptance by the home owner, LRS then steps back in and tenders and manages the work, helps people to find temporary accommodation while the work is going on, and provides ongoing after-care. The uniqueness of the product, according to LRS, is that it ensures that the post-works valuation of the property is an accurate proportion of the loan to value calculation.
“It’s a life-long package, for which the LRS fee is 20% of the cost of the works done; the works are done under a contract signed under deed, which means that works are guaranteed for 12 years after the work is done, ” says Kingsley. “The home improvement scheme changes people’s lives – their mental and physical health and sense of well being are dramatically improved, and they know that they can stay as long as they wish in their own home. This has to go national,” she adds: “all across the country there are pockets of need for this.”
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