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Capital Funding

There are different sources of capital finance; personal equity, loan finance, grant, bond finance, digital crowd fundraising and community share capital. Until recently personal equity, loan and grant finance have been the main sources of capital finance that cohousing projects have accessed. There is growing awareness of alternative sources of finance and a small handful of community housing projects have raised finance from alternative sources such as crowd source funding.

Cohousing projects are all different. Projects seeking to provide affordable accommodation need to reduce the development costs as much as possible (but not the quality!). Possible sources of finance to subsidise affordable homes can come from low cost or free land/property, considerable sweat equity, sale of market priced homes and/or grant funding. Remember not all cohousing communities involve building new property. A affordable and accessible option is to create cohousing in existing homes and neighbourhoods and/or using redundant empty property.

Financial lending institutions often prefer to spread the risk on capital development projects. It may be that a cohousing group will need to agree finance with more than one finance provider.

Grant Funding

Homes and Communities Agency Affordable Homes Programme 2015-18 - open for continuous bidding

Homes and Communities Agency Affordable Homes Guarantees Programme - open for continuous bidding

There is a handful of charitable trusts that have funded the development costs of innovative and replicable community housing projects including the Tudor Trust, Nationwide Foundation, the Garfield Weston Foundation.

Local authorities who are committed to supporting community housing have done so in the following ways;

  •  interest free pre-development costs
  •  grant support for legal and other costs
  •  commuted section 106
  •  grant for creating serviced self-build plots covering the land cost, services and slab foundation
  •  development finance for site purchase and all development costs including the build costs and fees with interest rolled up until completion.
  • not all local authorities are willing or able to help in this way but they have the power to do so.
  • use of New Homes Bonus to support the development of affordable housing.
  • the council tax raised on second homes (“Second Homes Council Tax”) has in some authorities been ring-fenced to promote affordable housing. In Devon and Cornwall in particular, funds from this source have been used to provide CLTs (and housing associations) with working capital, set-up costs and grants at a similar level to grants from the HCA to make schemes affordable.

Loan Finance

  • A small number of social investment type finance providers have a track record of lending capital finance to community housing projects and they include; Triodos Bank, Ecology Building Society and Charity Bank.
  • Cohousing projects have attracted capital finance from high street finance sources in addition to the list of specialist providers below.

Retail & Development Finance Audit

*rates subject to regular review

Investment source

Outline

Terms

Notes

Ecology Building Society - Development Loan to Cohousing Group
www.ecology.co.uk

email: jon.lee@ecology.co.uk

Tel: 01535 650774 

 
  • Lending available from purchase of site but must have at least outline planning for residential use
  • Minimum ecological criteria for new build EPC “B” rated or Code for Sustainable Homes Level 4, conversions / retrofits also considered on a case by case basis
  • Longer term borrowing available secured against rented units and/or communally retained assets
  • Lending available up to a £1.5m maximum per borrowing entity
  • Lending may not exceed 80% of Loan to Value at any stage of the project
  • Staged payments available subject to valuations
  • Interest only payments until completion of the development phase is available
  • Administration fee of 0.75% of the sum applied for is payable, (0.25% on formal application, and 0.50% on acceptance of a formal offer letter)
  • Variable interest rate for community led housing negotiable between 3.50% and 5.50%
  • Ecology only lend on developments that meet their minimum ecological criteria.
  • Guidance is available on materials, energy saving measures and links to professional sources of independent advice.

Ecology Building Society - Residential mortgages for buyers on cohousing projects
www.ecology.co.uk

email: jon.lee@ecology.co.uk

Tel: 01535 650774 

 

 

  • Minimum ecological criteria for new build EPC “B” rated or Code for Sustainable Homes Level 4, conversions / retrofits also considered on a case by case basis
  • Maximum Loan of £600,000 (£750,000 in London and the South East)
  • Lending available up to 80% of Loan to Value or loan to purchase price (whichever is the lower)
  • Application fee £300.00
  • Standard Variable Interest Rate 4.65%
  • Our C-Change discounts will apply with discounts ranging from 0.50% to 1.25% off our standard variable rate depending on the ecological specifications of the home being purchased (see notes)
  • Shared ownership, restrictive resale price covenants and bridging facilities considered
  • C-Change for Sustainable Homes discounts off EBS’ standard variable rate currently:
  • 0.50% EPC B rated homes
  • 0.75% EPC A rated homes, Code for Sustainable Homes Level 4, AECB Silver
  • 1.00% Code for Sustainable Homes Level 5
  • 1.25% Code for Sustainable Homes Level 6, Passivhaus, EnerPHit

Darlington Building Society

  • 3yr self build discount mortgage. Available following outline planning permission is granted.
  • 5.19% until 31st Oct 2014 then changing to 5.95%. 70% LTV, £499 fee and £75 completion fee.

 

Triodos Bank

  • Source of development finance. Do not loan to individuals. Relevant if there is residual debt finance – do not generally providing bridging loans

 

 

Charity Bank

  • Charity Bank is an ethical bank that exists to lend to organisations with charitable goals. 
  • Its mission is to use loan finance to support charities and social enterprises in their missions, so you can be confident that Charity Bank will work with you side-by-side.
  • You can apply for loans from £50,000 to £2.5 million, up to £3.5 million if you are a registered social housing provider and more in partnership with other lenders.
  • Charity Bank tailors the terms of each loan and fits repayment schedules to suit the needs of each borrower. 
  • It does not seek personal guarantees from trustees or directors other than in exceptional circumstances. 
  • Early repayment penalties are not charged unless the loan is re-financed through another lender in the first five years.
  • Charity Bank is entirely owned by charitable foundations, trusts and social purpose organisations, so it is able to keep its social mission at the heart of everything it does.
  • Its regional managers work with organisations across England, Northern Ireland, Scotland and Wales. 
  • To find out more, visit www.charitybank.org, call 01732 441919 or email lendingteam@charitybank.org.

Nationwide Building Society

  • Retail mortgages to some community led housing developments.
  • May be receptive if conditions on property are not overly restrictive

 

Community Land Finance

  • Venture capital finance. Specific to community asset development

 

 

Homes and Communities Agency

  • Community organisations can bid into the Affordable Housing Programme for gap finance.
  • Required to either be working with or to be working towards becoming (a) registered provider and,  (b) granted investment partner status, to access AHP investment.
  • Community benefit criteria, governance regulation and value for money criteria. Terms will incorporate claw back on finance.
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Considerations:

  • Check current overall cost comparisons at time of making a decision
  • Factor adequate insurance across the site.
  • Maximum lump sum repayment allowance without incurring finance penalty’s
  • CSH stands for Code for Sustainable Homes – an environmental assessment method for new homes in England, Wales and Northern Ireland and consists of six levels. Level 1 is equivalent to minimum Building Regulations and Level 6 is granted to ‘exemplar development’ – a zero carbon home. Further details on the Code are available at the Building Research Establishment’s Environmental Assessment Method (BREEAM) website www.breeam.org.uk

Alternative sources of funding

  • Community shares are a form of community investment which seeks to raise money from communities through the sale of shares or bonds to finance organisations serving a beneficial community purpose. The Community Shares factsheet defines it as “The sale, or offer for sale, of more than £10,000 of shares or bonds to communities of at least twenty people, to finance ventures serving a community purpose”. In addition to the Community Shares website you should visit Wessex Community Assets who can offers support and advice to organisations seeking to raise community investment.
  • It is not the same as community initiatives raising £1 shares through a membership Industrial & Provident Society; its focus is on raising investment capital and therefore requires reasonably significant individual investment. Investors into a Community Share project may receive interest or dividends on the money they invest, and as such it ought to be noted that this would conflict with any bid to achieve charitable status due to the potential for individual gain as well as community benefit (see note below on potential changes to this).
  • Community shares hasn’t been extended fully to affordable housing yet – although it is a fantastic opportunity for realistic profitable projects able to pay a financial return of say 3% or 4% - there are a number of societies in the housing/accommodation sector that have used loan stock, as opposed to withdrawable share capital, including Green Pastures Community Benefit Society and Mustard Seed Properties. There are also at least 3 community land trusts that have raised small amounts (£10k to £14k) from quite large memberships (100 to 200) – although not necessarily about housing.  Finally there is an organisation called Radical Routes, and its sister organisation Rootstock, that use IPS structures to raise loan stock which they on-lend to housing co-operatives. Eligible legal structures could be set to change now that the Charity Commission has agreed that community benefit societies can pay interest on withdrawable share capital and still maintain exempt charity status.