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Cash Incentive Schemes in Scotland - Research Findings

DescriptionThis is a summary of a report to examine Cash Incentive Schemes (CIS). These enable an authority to give grants to qualifying tenants to help them purchase their own home.
ISBN
Official Print Publication Date
Website Publication DateDecember 29, 1998
Development Department Research Programme Research Findings No. 21 (1996)
Cash Incentive Schemes in Scotland
Richard Evans
ISBN 0-7480-1255-9Publisher The Scottish Office
Since January 1989, Iocal authorities in Scotland have been able to introduce Gash Incentive Schemes (ClS) These enable an authority to give grants to qualifying tenants to help them purchase their own homes As well as encouraging homeownership among council tenants who otherwise would not be able to afford to buy, the schemes release council housing for reletting to those in housing need (including the homeIess) at considerably less than the cost of building new housing
Main findings
  • By April 1994, only 11 local authorities had introduced schemes, and only 80 CIS grants had been used.
  • However, the number of authorities with schemes is increasing. They consider CIS worthwhile as a low-cost way of releasing housing for the benefit of those in housing need; their main reservations are about the effect participation has on other capital expenditure, and about the lack of security that they will retain use of the released properties in the future. Some authorities have discontinued CIS, mainly because of low take-up,
  • Tenants who have used the CIS are generally very enthusiastic about it; 95% feel they made the right decision in buying the property they did.
  • Compared to local authority tenants who have not applied for CIS and also (to a lesser extent) to those who were eligible for grant but did not use it, CIS grant recipients are distinctive: they tend to be younger, with children, employed and with higher incomes, and more dissatisfied with their council home.
  • The means tests which authorities use to determine eligibility for CIS, or size of grant, vary. Some means tests are insufficiently sensitive with the result that many grants are either unnecessarily large or too small for individual circumstances.
  • The cost of properties purchased with CIS grant varies widely and the average is relatively high. The average of £47,400 is higher than the average price paid by first-time buyers in Scotland. The financial burden on tenants using CIS is generally much higher than the burden on tenants using RTB.
  • The report suggests ways in which the use of CIS might be increased by making schemes more attractive both to authorities and to potential applicants.
Introduction
This assessment-of CIS in Scotland is based on:
  • A postal and telephone survey of all 11 authorities that had operated schemes up to April 1994, and a telephone survey of a sample of 6 authorities that had not introduced schemes.
  • three postal surveys of tenants:

(a) tenants who had received grants (60 replies received):

(b) tenants who had been offered a grant which they did not use (35 replies);

(c) tenants who had not applied for CIS grant in 3 of the authorities with schemes (199 replies).

Extent of the schemes
The use of CIS has, so far, not been extensive though it is increasing; only 11 authorities had introduced schemes before April 1994 and in most of these there were not many applications. By April 1994 there had been 195 applications resulting in 80 grants given and a further 64 grants offered but not used. The remaining 51 applications were found to be not eligible. Four of the 11 authorities have discontinued their schemes, mainly because of low take-up.
The principal reason why CIS have been introduced is that they offer a low-cost means of releasing council housing for reletting to those with housing needs, including the homeless. The main reasons given by authorities which have not introduced schemes are that grants would come from their capital expenditure allocations (and other tenants would thereby suffer), and that authorities cannot be sure that they would not lose use of the released properties through RTB.
Publicity
A small majority of authorities that have operated CIS expressly told all tenants individually about the scheme. The rest relied on newspaper advertisements, posters, leaflets, and reference to the scheme in tenants handbooks. People who have received CIS grants say that the most common ways they first heard about CIS were in letters or leaflets from the Council (38%), newspaper advertisements or articles (38%), and from friends or neighbours (35%).
Means test
Means testing in CIS varies. In some of the schemes, means determine eligibility but, once it is established that an applicant is eligible, the size of grant is standard. In other schemes means also influence the size of grant.
Take-up
In most authorities, the level of take up was generally below that expected for a number of reasons: CIS is in most cases financially unattractive compared to RTB; CIS grants are modest in relation to high house prices in some areas; and the potential attraction which CIS offers as a means of moving neighbourhood is not strong in the authorities that have operated schemes.
Property released
Given the limited use so far of CIS, the benefits to those with housing needs has been, numerically, limited. Benefit to the homeless depends in part on the allocation procedures of individual authorities; nonetheless, half of the properties released by CIS have been used for the homeless either directly or indirectly in the short term; and in the longer term all properties released must improve the chances of those in housing need obtaining permanent accommodation sooner.
Grant recipients
Tenants who have received CIS grants tend to be younger, in households with 2 adults and at least one child, in employment, and with higher incomes. On average they had been living in the latest council home for only half the period of non-applicants, they were less satisfied with the council home (particularly its surroundings), and they were more likely to be on the transfer list. Two-thirds were not attracted by RTB because they did not want to buy their council home and over half wanted to move away from the neighbourhood.
Recipients of grants saw the main advantages of the properties they had bought with the help of the CIS grant as being their larger size, the garden and more privacy. 95% felt they had made the right decision in purchasing, and they are very positive about the CIS (which nearly two-thirds saw as an opportunity they did not want to miss). Their main criticism was the time taken by the council to reach a decision on applications.
90% of the grants received were of £9,000 or £10,000. Grant recipients bought property costing, on average, £47,400 with an average mortgage of £35,400. This average cost is relatively high, though it is inflated by high property prices in one significant authority (with this authority excluded, the average price was £44,100). It is high in comparison to the similar scheme for the tenants of housing associations, the Tenants Incentive Scheme (see below), under which the average cost of property purchased in 1993-94 was £42,500 (no TIS purchases were over £60,000, compared to nearly a quarter of CIS purchases); and the CIS average property price is higher than the average price paid by first-time buyers in Scotland of £41,300 in 1992 and £42,200 in 1993.
Property purchased with CIS grant was generally much more expensive than property purchased through RTB. Three-quarters of the CIS purchases cost, net of grant, more than £30,000; in the same authorities and over the same period, only 0.5% of the sales to sitting tenants were above this price, and only 11% were of £20,000 or more. Tenants who used CIS bought properties costing on average about 2 times as much as they thought their council homes would have cost after discount.
More than one-third of CIS purchasers had already been looking at private property to buy. Without a CIS grant 43% say they would not have bought at all; if the grant had been £2,000 less, 19% say they would not have bought, and if a loan instead of a grant had been offered 36% would not have bought. (see Figure below)

Effects of changes to grant

Most people who received a CIS grant would have used a larger grant to reduce the amount they borrowed rather than to purchase more expensive, larger, or better equipped property.
Eligible applicants who did not use grant
The characteristics of the eligible applicants who did not proceed to use CIS grant tend to lie between those of grant recipients and those of non-applicants. Compared to grant recipients, they were more satisfied with their council home (where they had lived longer). They saw the main advantages of properties they hoped to buy being their size, garden, privacy and garage. These properties would have cost about £4,000 less on average than the properties purchased by grant recipients; they would have had smaller mortgages, but more would have borrowed on top of the mortgage. About half of the small sample say that, if the grant offered had been £5,000 higher, they would have bought. The size of the grant being too small and the time limit on the scheme being too short were the main reasons they gave for not using the CIS grant offer. Their views on CIS are mixed; about two-thirds of the views expressed were unfavourable.
One third of them have since bought a property, mostly through RTB (at an average price of £26,400) because they could not find a private property they could afford with CIS and because RTB seemed to them better financially. One-third of the remainder who have not bought think it is likely they will use CIS in the next year.
Non-applicants
Non-applicants in the 3 authorities surveyed are more likely than grant recipients to be in one adult households and to be older; they are less likely to have children, much less likely to be employed, and in general they have lower incomes. They have lived in their latest council home twice as long, they are more satisfied with it, and fewer are on a transfer list.
Awareness of CIS among non-applicants is quite high (59%), though less than their awareness of RTB (79%); it varies markedly between authorities. Over half said they had not applied for a CIS grant because they would not be able to afford to purchase, and one-third because they were satisfied with their existing home. In contrast to eligible applicants who dropped out, non-applicants are more likely to use RTB than CIS in the next year.
CIS compared to the Tenants Incentive Scheme
The Tenants Incentive Scheme (TIS) for the tenants of housing associations has the same objectives as CIS but, numerically, has been far more successful. Up to April 1994, almost 6 times as many TIS grants had been paid as CIS grants. This greater success may be attributed to a number of factors:
1. The financial arrangements are different; Scottish Homes provides housing associations with additional funds to meet the cost of TIS grants and, in addition, reimburses their administrative costs;
2. In contrast to local authorities, housing associations can ensure that they retain the use of property released by
TIS;
3. TIS is a simpler scheme than CIS, which may make it more attractive to potential applicants. It is also a uniform scheme amongst the housing associations which operate it, thus making effective national publicity possible.
Suggested changes to CIS
More use would be made of CIS:
  • If more authorities introduced schemes; the two principal changes that might persuade more authorities to do so would be:
    • Separate capital spending consent for schemes;
    • Some guarantee that authorities' use of property released by CIS would not be curtailed by RTB.
  • If the scope of schemes were expanded, not limited to meeting the needs only of the homeless (as some schemes have been), covering more areas it not the whole of an authority, including support for self-build, and with more publicity given to provision for extension or alteration as well as property purchase.
  • If schemes were made more attractive to potential applicants, allowing for larger grants where an applicant's means are modest, and raising the maximum price of property that may be purchased by CIS
  • If applications were dealt with quicker by authorities so that fewer applicants missed out offering for property they were interested in.
  • If schemes were better publicised, preferably by individual notification to all tenants who might be eligible.
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