Residential property: empty homes

Cutting back on waste

13 June 2014

Anna Laycock discusses how empty homes are being brought back into use

There are estimated to be almost 1 million empty homes in the UK – properties that could provide a place for people to live but instead blight local communities and economies. At a time when nearly 2 million British families do not have adequate housing and 75,000 families are homeless in England alone, the lack of widespread action on empty homes is nothing short of scandalous.

The problem

Empty homes are a wasted resource for society and for the owner of the property, but is demolishing and rebuilding them the solution? As well as the fundamental waste this entails, it risks destroying the local architecture and materials and sense of community these houses sustain.

Empty homes are a wasted resource for society and for the owner of the property, but is demolishing and rebuilding them the solution?

While many are derelict, the majority of empty homes are in a reasonable condition and can be brought back into habitable use with a relatively small amount of work. And at a time when there is a desperate need to reduce the carbon footprint of the UK's housing stock, renovating empty homes can be a more efficient and cost-effective way to increase housing supply. This in turn helps those on lower incomes to access homes that are affordable to buy and heat.

Recent surveys have shown that the average empty house needs an investment of £10,000 to be brought back into use. But their owners are often unable to access funds for this purpose, because lenders will not consider a second charge loan or they perceive empty properties as high risk. This creates a vicious cycle of decline in areas with high numbers of vacant homes.

The solution

Campaigning charity Empty Homes has launched an innovative loan scheme to help bring empty properties back into use, supported by pioneering green lender Ecology Building Society. The National Empty Homes Loans Fund (NEHLF)  provides access to loans of up to £15,000 to owners of empty properties in England to help bring them back into affordable use. Homes must be renovated to Decent Homes Standard and then let out at an affordable rent. The loans are available to individuals aged 18 and over who own a property that has been empty for 6 months or more for a fixed term of 5 years on a full-repayment basis.

There is no rigid list of works that are eligible for the loan, but it is likely that owners of empty properties will consider measures such as a new kitchen or bathroom, insulation, installing double-glazing or a new roof. Nor are there restrictions on the choice of contractor to carry out the works; those with existing mortgages may also be able to remortgage with Ecology.

The programme has been funded by a grant of £3m from central government and the role of local authorities in the scheme is critical. With their knowledge of local empty homes hotspots, local authorities can use the NEHLF scheme as part of their support package for owners of vacant properties, potentially helping to reduce the need for enforcement actions such as Compulsory Purchase Orders or Empty Dwelling Management Orders. Bringing long- term empty homes back into use can also enable local authorities to access the New Homes Bonus, a central
government grant paid annually for 6 years. To date, 52 councils have partnered with the scheme, providing a local representative to liaise with owners of empty properties and help them to apply for a loan.

The system

Where a local authority has already partnered with the NEHLF scheme, initial enquiries are made via a local authority representative, who establishes whether the project is eligible for the scheme. The details are then passed to Ecology, which discusses the proposal with each applicant and issues a mortgage application form. Where local authorities are not already part of the scheme, enquiries can be made directly to the building society; the underwriting process and its standard mortgage underwriting process are based on the same principles. As well as the usual financial checks and documentation, the potential social and environmental benefits of the projects are assessed and form an important part of the lending decision.

Where a whole street or community is blighted by empty homes, the level of demand and consequent sale value or rental yield of properties is severely affected

It is this blended approach that has historically enabled Ecology to lend on properties that other lenders reject, including those using unconventional materials or those bringing derelict buildings back into use. Valuation is a central part of this process, but the nature of empty homes creates some additional challenges for surveyors and underwriters alike.

Whereas the disused properties that Ecology has historically supported tend to be exceptions in otherwise thriving areas, the empty homes supported by the NEHLF tend to be part of a pattern in the local area. Such properties, at the lower end of the market, give relatively little margin for movement in valuations. Where a whole street or community is blighted by empty homes, the level of demand and consequent sale value or rental yield of properties is severely affected. The lack of sales data also limits the information base for comparative valuations.

Given these challenges, Ecology prefers to use local surveyors: those with the best understanding of the area and housing market trends over time. Judging mortgageability is based on positive environmental impact as well as financial prudence. In the case of the NEHLF, this includes a list of proposed works, to enable the most accurate estimation of completed value and rental yield.

Grappling with these issues means an opposite to a tick-box approach, but that is not unusual for Ecology. Its individual approach to each case gives it the flexibility to consider innovative projects and reflects its mission: it exists to support sustainable properties, not to make maximum profit.

In the case of empty homes, sustainability means breathing new life into neglected properties and bringing vitality to local communities. The NEHLF is a small-scale pilot scheme, but the lessons learned will help scale up its work to meet the challenge. And with UK's population growing faster than its housing stock, there can be few challenges so urgent.

Anna Laycock is Communications and Research Manager at Ecology Building Society

Further information

Related competencies include: Housing maintenance, repairs and improvements, Housing management and policy, Housing strategy and provision