Home appreciation loan

Section 1

Introduction

Lorna Frost: Hello I’m Lorna

Dene Malkin: Hi I’m Dene

Lorna: And we’d like to welcome you to this Home Appreciation Loan film which has been produced as a guide for you as a home owner to find out how you can improve the quality of your life within your home.

Dene: The Council believes that everyone has the right to live in a decent home. This is a home that is safe, warm, weatherproof and have reasonably modern facilities. We understand the importance of this for the health and wellbeing of those living within their home.

Lorna: We also recognise that some home owners such as the elderly for example, or those who are most vulnerable may not have enough money available to keep their home in good repair.

Dene: We can help by providing a dedicated loan service based within Sheffield City Council. This is called the Yorkshire and Humber Regional Home Loan Service. This is there to provide loans for Local Authorities and their residents across the Yorkshire and Humber region.

Man 1 (with glasses): The reason that the loan was set up was to allow people on low incomes who can’t afford monthly repayments still to be able to have a loan and to improve their homes.

Woman 1 (dark shoulder length hair): We’ve developed the loan in accordance with guidelines that have been issued by the Office of the Deputy Prime Minister to give the clients added protection.

The Home Appreciation Loan

Lorna: The loan that I am talking about is the Home Appreciation Loan. The Loan is provided to help anyone who owns and lives in their own property to carry out any necessary repairs and improvements to allow them to enjoy a decent home. The Loan allows you to release money from your home and it is secured against the property. It does not become repayable until you sell or transfer ownership of your home. 

Woman 2 (short hair with glasses): The Home Appreciation Loan offers people on low incomes or on benefits the opportunity to improve their home and do work that they might not otherwise be able to afford.

Who is the loan for?

Dene: The Loan is available for home owners who are classed as vulnerable. As a vulnerable home owner you must also meet our eligibility criteria and be unable to access a loan from a high street lender. You must own your own home and live in your own home. You must also have enough equity in your property to be able to apply for the loan.  The only age restriction that applies is that you as a home owner must be aged 18 or over.

What is the loan for?

Lorna: It can be used to carry out essential work to your home, particularly where your health and safety may be at risk. For example, faulty electrical wiring or a leaking roof. It can be used to do any work to bring your property up to the Government’s decent home standard. This may involve fitting a new kitchen or bathroom, for example. It can also help pay your contribution towards a disabled adaptation in your home.

Section 2

How does the loan work?

Dene: Let me briefly explain how the loan works. The Council will determine what works can be covered by the loan. They will also help you through the entire loan application process. A step by step guide is provided later in this film, but to summarise, the amount you borrow is calculated as a percentage of your property value at the time the loan is taken out. An independent valuation will need to be arranged to establish the value of your property. There are no monthly repayments to make, there is no fixed repayment term, the loan is secured against your property, you do not have to repay the loan until you transfer ownership of your property, move into long term care or sheltered accommodation or if you were to pass away.

Woman 2: To ensure that the client knows what is happening, they would have their own case worker as a point of contact throughout the whole process.

Philip Twigg: After the initial meeting and the loan application has been completed you will then be given full details of what happens next.

How much can you normally borrow?

Lorna:  So let’s now look at how much you can normally borrow and how the loan amount is calculated.  The minimum loan amount that can be borrowed is normally £2,000* and the maximum is normally £30,000. We will not normally lend you more than half of the value of your property. Also, as a responsible lender, we will always look at the amount of existing borrowing you may have against your home.  This may limit the amount of loan that we can give you. 

*Since this video was originally made, the minimum loan amount available has been reduced to £1,000.

Woman 3 (blonde shoulder length hair): There is no minimum or maximum term, the term will depend on how long you continue to live in your home.

How the loan amount is calculated

Dene: Mr and Mrs Anderson need repairs to be done to their property which will cost £10,000.  The work includes a new roof, electrical rewiring and also a new kitchen. Their home is worth £65,000 and they already have a mortgage of £20,000. This means the equity in their home is £45,000. If they take out a loan of £10,000 they will have borrowed the equivalent of 15.38% of the value of their home, ie £10,000 divided by £65,000 times 100 equals 15.38%.

Man 1: People on low incomes or benefits don’t have to worry about repaying the loan, the amount of the loan will only be taken when the property is sold or the interest in it is transferred and then the loan will be taken from the available equity in the property.

What if you have other lending on your home? What costs do you have to pay to take out a HAL?

Lorna: If you have other secured lending on your home you may still be considered for a loan as long as your existing lenders will give us permission to secure our loan. Without this consent we would be unable to proceed with your loan application.

Dene: So what fee will you have to pay when you apply for the loan? The Council normally cover all the costs involved with the loan application process. This would include the legal fees and the valuation fee. In more complicated cases where extra legal work is required, the Council may not pay all the fees involved. These fees can either be added to your loan or paid from your own money. If you cancel your application after you’ve signed the loan agreement letter, you will be liable for any fees that have been incurred up to the date of cancellation.

Woman 3: Subject to certain loan conditions there is a no repossession guarantee while the client continues to own and reside in the property.

Will the loan money be paid directly to you?

Lorna: The loan money will be paid directly to your contractor upon satisfactory completion of the work to your property.

Section 3

How do you repay the loan?

Lorna: As I mentioned previously, there is no fixed repayment term and you do not make any monthly repayments. Let me give you some examples of when you might repay your loan. This could be when you sell your property, move into long term care or pass away. For joint applicants the loan will only become repayable when this has happened to both borrowers.

Man 1: If a client’s circumstances change for the better or for instance if they win the lottery, they always have the opportunity or the chance to pay off the loan in full at any time they wish.

How much will you be expected to pay back?

Dene: So how much would you be expected to pay back on your loan. When the loan becomes due for repayment, we will use the original percentage that you borrowed and calculate this against an up to date valuation of your property. This will normally give us the amount of loan that you need to repay. However, to protect you against extreme house price rises, we have a fixed interest repayment cap. This will ensure that you do not pay back an unfair amount on your loan as the Council does not wish to profiteer from this loan scheme.

How the loan amount to be repaid is calculated

Lorna: To demonstrate how the loan amount to be repaid is calculated, let’s go back to the example we used earlier. Mr and Mrs Anderson decide to sell their property ten years after taking out the Home Appreciation Loan. Once an independent valuer has undertaken a new valuation of their property, the amount to be repaid can be calculated. The new value of their property is £85,000 therefore the amount to be repaid is 15.38% of £85,000 which is £13,073, ie £85,000 times 15.38 divided by 100 which equals £13,073. For the purpose of this calculation, we can assume the amount is below the fixed rate loan repayment cap. Mr and Mrs Anderson still owe £5,000 on their mortgage, therefore the amount of money they will receive if they sell their home at £85,000 is £66,927, ie £85,000 minus £5,000 minus £13,073 which equals £66,927.

Can you repay the loan in full before you sell your home?

Dene: So can you repay your loan in full before you sell your home? Yes. You can repay the loan at any time if you would like to. An independent valuation will need to be arranged on your property in order to calculate the amount of loan you need to repay. The valuation will be payable for this and it will be paid for by yourselves.

Can you move home? What if your house falls in value?

Lorna: So, can you move home? Yes, you are free to move home at any time, but you must bear in mind that the loan is not transferable to your new home and must be repaid. Therefore you must consider the implications of the loan if you think that you may move house some time in the future.

Dene: If your house falls in value, you only have to pay back the original amount that you borrowed.  We also give a no negative equity guarantee which means that you or your beneficiaries don’t have to repay back more than your home is worth.

What will happen to your family’s inheritance?

Dene: So what will happen to your family’s inheritance? If you decide to take out the loan to address repairs to your property we strongly recommend that you discuss this fully with your family. We are happy to help in any way that we can, we can even arrange to meet with you and your family to discuss the loan in more detail. Your decision as to whether you take out this loan or not will depend on how you and your family view the quality of your life in your home. By improving your home you’re not only investing in it to potentially increase its value but you’re also making your home a more pleasant place to live.

Saba Mumtaz: The client is encouraged to have other family members present at the interview so that they can discuss the loan.

Philip: You will be given full information during the course of the interview by the case worker to allow you to make an informed choice to determine whether the loan is right for you.

Section 4

How does the application process work?

Lorna: The council will help you determine what work is required to your property. We will help you complete your application form and send it to the Yorkshire and Humber Regional Loans Service. We will arrange an independent valuation of your property to confirm the current value of your home. On receipt of the valuation report we will write to you to confirm if you can have a loan and send you a loan agreement. Once you have signed and returned the loan agreement we will appoint a Solicitor to do the necessary legal work for you. When the legal work is done, you will be able to ask your builder to start work on your home. When the work to your home has been completed satisfactorily and confirmed by the Council, we will arrange for your contractor to be paid.

Woman 2: If the client is house bound they would be interviewed in the comfort of their own home by fully trained staff.

Saba: The loan is available for both leasehold and freehold properties, however leasehold properties are subject to conditions.

Should you obtain independent financial legal advice?

Dene: We strongly advise that you check that this loan will meet your needs if you plan to move or sell your home or want your family to inherit it. If you are in any doubt whatsoever, please seek independent legal advice or independent financial advice or even both. Please bear in mind that you may be charged for this advice and these fees will be payable by yourself and not the Council.

Are there any conditions attached to the loan?

Dene: The Council have the final decision as to whether the work on your property has been satisfactorily completed. If you would like someone else to move into your property with you, we must give our consent. You must ensure that you have adequate buildings insurance in place to cover your property for the duration of the loan and this must cover the cost of rebuilding your home as quoted on the valuation report. You will be asked to provide us with proof of your buildings insurance before we appoint a Solicitor. You will also be asked to provide us with proof of your buildings insurance on an annual basis.

How will I know that my house has been valued fairly?

Lorna: To ensure your property is valued fairly and to give you piece of mind we will appoint an independent valuer who is fully qualified to assess the market value of your home.

Man 2 (balding man): There are no time limits at all involved with this particular product. You can choose if and when you want to go ahead with it at your leisure. It is entirely up to yourself. Perhaps your family want to assist you with this decision. We will always be here to answer any further queries that you’ve got, so as far as time is concerned there is no pressure at all.

Philip: If you have any doubts we would strongly recommend that you seek independent legal and financial advice to ensure the loan is right for you.

Closing

Lorna: Well that’s all from us for now. We hope this film has helped explain the details of the Home Appreciation Loan Scheme provided by your Local Authority and that you have found it useful.