Commercial Property Blog: Houses into Homes for Wales4th December 2013

In 2012 the then Welsh Minister for Housing, Regeneration and Heritage Huw Lewis announced the launch of the Houses into Homes Recyclable Loans Fund. This was a £5 million fund specifically aimed at Welsh houses that had remained empty for over six months, with the intention of bringing the properties back to a habitable standard.

You could be forgiven for believing that leaving an asset with an average price of £150,000 empty would be remarkably rare, but in 2009 there were a staggering 22,000 empty properties in Wales (empty is taken as registered on the council tax register and vacant for more than six months).

There are a wide range of reasons why these properties are empty; some are second homes, some are inherited and going through probate and some are unable to be sold and the owner has moved to their new home. However, a surprising number are empty because they are in such a state of disrepair that they are uninhabitable.

Looking at the overview, the scheme is targeted to tackle the main reason why the homes are empty and the Welsh Government has a massive incentive to bring them back into use. As of the first quarter of 2013, the number of empty homes in Wales stands at 1,355 and may rise due to a number of factors; These include the uncertainty caused by the roll-out of UK Government's Welfare Reform proposals which include Universal Credit.

The scheme is fairly simple, if your property has been empty for over six months, you can apply to borrow up to £25,000 per unit; up to a maximum of £150,000. This can be used on empty blocks of flats, or can be used on a building (residential or commercial) to be converted into a number of residential units. Therefore, maximum benefit can be gained at six units, but this does not stop a developer creating more. The loan is for two years and is interest free, but is secured as a second charge against the property or alternatively another property that is owned by the same person. The property in question must also be brought back into use for the owner to sell or rent out and not live in. It is administered by the local authority the property resides in, so each local authority will have its own costs for the paperwork and valuation, bringing the costs to around £500 per property.

Overall, the intention of the scheme is incredibly positive. It is a genuine win-win-win situation for Welsh Government, the owner and soon-to-be owner or tenant. The total available should be more than adequate for all but the most dilapidated property, and if the goal is to bring the property into a condition to sell it, then the two year timescale is more than adequate to repay the loan, especially with positive signs in the market.

However, it is here that flaws start to appear. One of the main reasons why many of these properties are empty is the fact that they are in negative equity. The Houses into Homes scheme requires a charge on the property equivalent to the loan you take out and therefore a property with negative or little equity is no good for the loan. So arguably those that need it most are the ones that can't afford to sell because they can't pay off the mortgage if they did.

Also, the repayment timescale is too tight for recovering the loan through the rent, but presumably this is to encourage the loan to be recycled. However, this just traps the same people. Another flaw is that it is a scheme well designed to attract savvy investors to target empty properties such as pubs as they offer a decent opportunity to convert into flats, thus bypassing the smaller property owners. However, the objective is to reduce empty homes and this does achieve that.

Despite these flaws this is a very positive initiative from the Welsh Government. Empty Homes are a travesty and we need to bring them back into use as soon as possible. It is encouraging that the Welsh Government is listening. The total amount in the loan scheme has been increased twice from £10m to £20m with the new Minister for Housing and Regeneration Carl Sargeant showing great support for the scheme, which gives confidence in its sustainability.

Also, local authorities are creating individual supports around the main scheme to help facilitate those that are trapped with their empty property. Flintshire Council has had a long standing secondary empty homes policy and successfully brings these types of properties into use whereas Cardiff is seeing a larger take up from more sophisticated landlords. They are also encouraging engagement with housing associations for those that don't want to get involved with the refurbishment process. I would like to see stronger ties with private sector organisations here who are often more efficient at this process and so give greater choice to the empty property owner.

Ultimately the Welsh Government is providing more options to get empty homes back into use and refinements look set to be made to increase take up. Although not perfect by any means (and the paper work is pretty mean) it is certainly a better option than leaving a house empty in this climate.

About the author

Douglas Haig is the Managing Director of James Douglas Sales & Lettings and sister company Seraph Property Maintenance in Cardiff. He is also Chair of the Cardiff Landlord Forum and Residential Landlords Association(RLA) Director for Wales.