Clergy Retirement Housing Loan Scheme
THE REPRESENTATIVE BODY OF THE CHURCH IN WALES CLERGY HOUSING EQUITY LOAN SCHEME (2005)
The Representative Body of the Church in Wales (RB) is able to give assistance with retirement housing on the terms outlined in this document.
This Scheme is for stipendiary clerics:
- In post at the date of application and who were 50 years of age or over on 31 December 2010; and
- who at the date of retirement will have completed ten years’ stipendiary service in the Church in Wales; and
- stipendiary clerics forced to take early retirement due to permanent incapacity certified to the satisfaction of the medical adviser to the Representative Body.
Where clerics are eligible under the 2005 scheme and the old scheme they may choose which scheme they wish to apply under.
If you are making plans for your retirement accommodation and would like to know how the scheme may fit your particular circumstances, the staff at the RB are always available to answer any questions you may have or to give more detailed information. (029 20348200). The staff at the RB are not qualified to give financial advice and will not do so, and will not accept any liability for any decision you take in connection with these loans.
If you are within three years of retirement and would like to apply for assistance within the terms of this scheme, please contact the RB’s staff. Once an application form has been completed, it will be possible to offer you advice as to whether you are eligible for the scheme and an indication of the amount of loan available.
Advances under the old scheme cannot be replaced by advances under the 2005 scheme.
The 2005 scheme will expire on 31st December 2030.
The figures quoted in this document are correct at the date of printing and will be revised from time to time.
1.1 The Scheme
The objective of the scheme is to enable all clerics who retire from the stipendiary ministry, having been in occupation of a ‘tied house’, to obtain a suitable retirement property, of modest proportions, where they do not have the financial resources to provide such accommodation for themselves.
Retirement housing is not provided ‘as of right’, but may be offered having regard to the resources available to the RB. The help provided will be related to each applicant’s circumstances. It does not form part of the purpose of the scheme to assist those who have some resources of their own, either in acquisition of a larger property, or with their wider financial planning by freeing capital for other purposes. Generally, if you own a property you would not qualify for this Scheme.
The widow of a pensioner who qualified for this scheme can continue to participate in the scheme. Assistance is also available to widows who have to vacate a tied property as a consequence of their husband’s death if he qualified for this scheme while serving in the stipendiary ministry. (NB: all references to widows should be taken as applicable also in the case of the widowers of female stipendiary clergy).
This document also explains advances of gratuity.
1.2 The Property
The RB will only be prepared to contemplate making an equity loan on a property of conventional construction, of modest proportions, with a garden which can readily be maintained in retirement by the applicant.
- Properties built using timber-frame construction are not generally acceptable.
- Properties requiring major renovation, conversion or modernisation are unlikely to be considered suitable for this scheme.
- Houses and bungalows should be freehold, and flats must be leasehold.
- Leasehold properties must have an unexpired term of at least 90 years on the lease.
- Flats should normally be on the ground or first floors.
- Sheltered accommodation may not be suitable for inclusion within the scheme.
- Ideally, the property should be within level walking distance of shops, church, doctor and public transport.
The RB will usually refuse an equity loan where the price exceeds one and a half times the Nationwide Welsh Average House Price Index. The RB reserves the right to determine the suitability of a property for the purpose of an equity loan.
1.3 Equity Loan
The expression ‘equity loan’, in this document, means a mortgage where the amount required to repay the loan is linked to the value of the property on which it is secured. It will represent the same proportion of that value as it did when the loan was granted, subject to any adjustments which have been made due to part repayments or further advances during the period of the loan. The nature of these mortgages makes them unsuitable for short-term lending and thus ‘bridging finance’ cannot be considered. The RB loan will be the first charge on the property.
Those eligible to participate in the scheme may apply for a mortgage up to three years before their earliest retirement date.
All applicants who are granted equity loans will be required to occupy the property they have purchased when they retire.
1.4 Can an applicant choose where to live?
- The scheme applies to properties in Wales or England. Clergy are conventionally expected to choose somewhere outside their former parishes. If they wish to live in or near to a former parish, the Bishop’s or Archdeacon’s attention will be drawn to the situation. In the event of concern being expressed about such a course, assistance with housing in that area will not be available.
1.5 Will a widow and dependants be homeless?
- It is advisable that applications are made in joint names to avoid a further application by the spouse on the death of the cleric.
- A widow can remain in the property after her husband’s death, but would need to continue repayment of the loan. The loan would be in the widow’s name.
- The RB will also consider sympathetically the position of other dependants, but would not normally continue housing them after the death of both the beneficiary and spouse.
- If a spouse with a mortgage from the RB marries a lay person, she would normally no longer be regarded as qualifying for continued assistance under the scheme. The RB does however have some discretion, enabling it to take into account individual circumstances. Where a remarried spouse dies the mortgage would have to be repaid.
- Where a cleric is deceased his/her spouse may apply for a loan if they are not remarried. The eligibility and timing of the loan to apply as if the cleric were still alive.
AN EQUITY LOAN
The applicant buys the property, providing a proportion of the purchase price, and the RB lends the balance. Mortgage finance provided by the RB can be used only to purchase a property which is occupied, or to be occupied, in retirement by one of its pensioners.
2.1 Will a loan be available regardless of an applicant’s capital resources?
- No. Those applicants who have sufficient resources (joint resources, if they are married) to provide a retirement property without recourse to the RB will not be given financial assistance. Those who need assistance will not normally be able to retain more than approximately £50,000 after meeting their share of the purchase price of the property.
For example: If a cleric wanted to purchase a property valued at £200,000 and had capital of £150,000 the maximum the cleric could retain of his capital is £50,000 and would therefore in this case need to apply for a loan of £100,000 and use £100,000 of their own capital to purchase the property
- A condition may be imposed requiring part repayment of the loan if the applicant is due to receive further capital in the future.
2.2 What is the minimum capital retention after the loan has been granted?
- The preferred minimum capital retention calculated with reference to the time of retirement is £15,000.
For example: If a cleric wanted to purchase a property valued at £200,000 and had capital of £150,000 the minimum the cleric should retain of his capital is £15,000 and would therefore in this case need to apply for a loan of £65,000 and use £135,000 of their own capital to purchase the property
- If a loan is granted prior to retirement, this minimum may be adjusted, having regard to the prospective lump sum due on retirement.
2.3 What is the minimum capital input of the borrower?
- At least 10% of the value of the property.
2.4 What is the maximum loan?
- The maximum loan which can be offered is £100,000 *, providing this does not exceed 90% of the value of the property or seven and a half times the gross retirement income of the borrower. (*indexed from June 2003 to the Nationwide Welsh Average House Price Index and subject to assessment by the Representative Body)
- The maximum loan and the capital retention parameters will be revised and apply from April each year.
- Advances will be based on the lower of purchase price or valuation.
- Whilst the RB will assess the amount it is prepared to advance, it is the responsibility of the applicant to decide that he/she is able to make the repayments and meet other financial commitments. Generally, total housing costs which would be the interest payments, items in para 2.9 and property insurance should not exceed 30% of gross income.
2.5 Who pays the legal and surveying fees?
The RB will require a full RICS home buyers report and valuation on all properties. The RB will share with the borrower, in the same proportion as the loan bears to the property value, the fees relating to a successful purchase (for the first purchase).
2.6 How is the interest charge paid by a borrower calculated?
- Variable interest is calculated at one half of the Bank of England base rate with effect from 1st April 2007. The rate will be reviewed in April of each year following consideration of current rates and their impact on borrowers.
- The RB will collect interest due monthly by deduction from a Church in Wales pension (or stipend before retirement).
2.7 How is a mortgaged property to be insured?
- The borrower must insure the property at their own expense with an approved company that arranges for the insured value to be adjusted each year in line with building cost inflation.
- It should be insured initially for an amount to cover the full repair or reinstatement of the property, together with an allowance for professional fees and costs that would be incurred in the event of a loss (including, where appropriate, site clearance), and reviewed to a level of cover suggested by the Royal Institution of Chartered Surveyors for the property, taking into account its age and style.
- The RB requires its interest to be noted in the buildings insurance policy and that confirmation is received by the RB before the release of the equity loan. Confirmation annually that the policy remains in force will be required.
2.8 Who is responsible for looking after the property?
- The borrower retains direct responsibility for the property’s condition and the cost of its upkeep. The property should be well maintained.
- The RB requires a Chartered Surveyor to inspect the property at approximately five-yearly intervals to provide an insurance valuation and a maintenance report. The RB will share the cost with the Borrower in the same proportion as the original loan bears to the property value.
- In the event that a property becomes or could become unsafe or unhealthy to live in and the occupants do not have the resources to repair the property the Representative Body will have the right to carry out such repairs as are necessary and add this sum to the equity loan
2.9 What other outgoings does the borrower have to meet?
- The water rates, gas, electricity and other utility costs.
- The Council Tax and the premiums for Contents Insurance, but these are a personal responsibility not directly related to the property.
2.10 Are there any tax implications to be considered?
- Under current tax legislation the provision of a low rate loan gives rise to an assessable benefit that is liable to Income Tax. The assessable benefit is calculated as the difference between the interest payable on the loan and the ‘official rate’ determined by HMRC from time to time. This applies to all loans to clergy where the loan balance exceeds £10,000 and interest is charged at a rate lower that the HMRC “official rate”. The assessable benefit, and subsequent income tax charge, arises from the date of the loan advance and continues into retirement. Following the death of a cleric, the widow/widower would also be liable to income tax on the assessable benefit.
2.11 Can improvements be made to a mortgaged property?
- When acquiring a property, borrowers are encouraged to ask for a loan of a suitable amount to cover the balance of the purchase price and the cost of any works necessary to put it into good order. The need for subsequent work of a major nature is, as far as possible, then eliminated for the foreseeable future.
- If work is required later, or if a borrower wishes to alter the property in any way, it is essential that they contact the RB before proceeding. Improvements to the property may affect the amount due to the RB on sale. More detailed notes on improvements or alterations are available from the Representative Body and should be obtained before such works are undertaken.
2.12 What happens if I want to move?
- During the life of the equity loan, the cleric or widower, in the event of sale, may, at the discretion of the Representative Body, carry forward the full equity value of the RB into the new property. All costs to be met by the borrower. This will be treated as a new equity loan and the scheme at that time would apply. The following is an example:
- A cleric and spouse purchase a house on retirement near the home of their child who after 5 years moves with their occupation to a different part of the country. The cleric and spouse want to move to be near them.
- The first property cost £100,000 and the equity loan was for £90,000. On sale the property secures £200,000. Therefore the equity share rolled forward is £180,000.The second property is £220,000 and the deposit is £22,000 requiring the loan to be increased to £108,000. The new equity share would then be £198,000 (or 90% of the value of the property)
2.13 What documentary evidence of income and capital will be needed?
- The RB reserve the right to request such documents as are necessary to identify the income and capital of the applicant(s). This would include tax returns.
REPAYMENT OF THE LOAN
3.1 What happens if the house is worth more than it cost when a loan is repaid?
- The amount required to repay the loan will represent the same proportion of the value of the property as it did when the loan was made, subject to any subsequent adjustment arising from capital improvements or part repayments of the loan.
- For example a house purchased for £80,000 with the aid of a £50,000 loan. The RB, having contributed five eighths of the original value, is entitled to an equivalent proportion of the value, so, if the house is valued at £90,000
The RB receives five-eighths: £56,250
The Borrower (or his estate) receives three-eighths: £33,750
The method of calculation above would also apply to part repayments (minimum £10,000) For example if a property is purchased for £100,000 with a £90,000 loan and after a few years the clerics wishes to repay part of the loan when the property value has risen to £200,000. The RB equity value at that point would be £180,000 (90% of the value) If £30,000 is repaid from the loan the outstanding loan on which interest would be charged would be £60,000 but the equity interest of the RB would only fall to £150,000 (75% of the property value).
3.2 But what happens if a mortgaged property is worth less than it cost?
- Should this event occur, through no fault of the borrower, the RB will share the loss.
- For example, if the house in the previous section had been valued at only £60,000:
The RB would receive five-eighths: £37,500
The borrower (or his estate) receives three-eighths: £22,500
3.3 Who pays the fees relating to the final sale?
- The borrower or borrower’s estate.
3.4 What happens if the property has not been well maintained?
- The RB will seek a financial adjustment to its sale proceeds to mitigate any loss incurred because the property has not realised a proper price.
Advances of Gratuity
Interest free advances of gratuity are available to all clerics, regardless of whether they qualify for the Equity Housing Loan Scheme, as follows:
- Up to three years before the eligible retirement date to assist in the purchase of a retirement property.
- Up to two years before the eligible retirement date to carry out repairs to a property owned by the cleric to make it suitable for their retirement.