The Property Bond Scheme – A Sensible Way Forward
From its inception, HS2AA has worked extensively on the issue of blight and how best to deal with the challenges faced by communities and householders who live near the proposed route of HS2.
Our proposal on this issue, known as the “Property Bond Scheme”, we believe, offers a realistic and sensible way of addressing this issue. It can provide property market confidence, reduce blight and opposition to a project (in its turn helping to reduce its net cost to the promoter).
It would also seem to match the Government’s stated goal, as articulated by the Secretary of State for Transport in December 2010 that ‘….Where a project which is in the national interest imposes significant financial loss on individuals, I believe it is right and proper that they should be compensated fairly for that loss.’
The scheme was also praised in a 1997 Government report on blight as “coming closer than any other scheme” in dealing with blight effectively.
The objective of the scheme reflects the principle that ‘the polluter pays’ – commonly perceived as what is fair. It is based on private sector best practice, most notably the scheme offered by the private sector consortium seeking to reopen a freight line from the South Coast to Liverpool, known as Central Railways. With that scheme a property bond approach was successfully used to minimise the impact of blight on impacted communities.
How would it work?
The Property Bond Scheme would be available to property owners who suffer a “loss in property value” due to HS2. It would remain in effect until one year after HS2 becomes operational (2027 at the earliest for Stage 1).
Such eligible owners would be able to apply to HS2 Ltd for a Property Bond. The Bond would guarantee that HS2 Ltd will assume a role as purchaser of last resort and purchase the property at an ‘unblighted value’ if:
- The HS2 project has reached a specified trigger point, eg planning approval date;
- No private buyer is found at the unblighted price when the owner wants to sell.
The benefit of the Bond would transfer with the property, meaning property purchasers could have the confidence of knowing that they are covered by compensation arrangements if the impact of the line reduces the value of their property.
There would be no qualifying reason for sale, restrictions on proximity, noise etc, or threshold loss. The sole critieria would be whether or not there is a financial impact on a properties market value due to HS2.
Any Property Bonds still in place when construction of the route has finished and train operation has begun would entitle the then owner to compensation of the loss in value from HS2 as distinct from current statutory compensation approach which is a lot less generous.
In order to inhibit groundless sales applications and deliver value for the taxpayer some ‘general conditions’ must be met
- A property must have been marketed for a minimum period (determined by price bands)
- No ‘serious offers’ at blight-free value (with evidence to justify this value) be made
- The belief that its reduced value is due to HS2 must be reasonable and evidenced
In addition calculations of ‘loss in value’ would be market determined i.e. the difference between the blighted price, based on what people will offer to pay for a property and what the property would have been worth at an “unblighted value”. The unblighted value would be professionally estimated, using standard approaches adopted by the Royal Institute of Chartered Surveyors. If the unblighted value is not more than the best serious offer received, the owner pays the evaluation costs.
To ensure the process worked properly, there would also be an independent appeals mechanism to oversee decisions taken on eligibility, process and valuations.
Properties covered by Property Bonds should also be stamp duty exempt for the life of the bond to encourage private sales. The Bond could also be used for re-mortgaging purposes.
HS2AA has campaigned extensively on the merits of this approach. In particular:
- Created proposals. In 2010 when the route was announced together with interim compensation arrangements (the Exceptional Hardship scheme) we produced our initial property bond proposals, securing over 80% support for them in the 2010 consultation.
- Forced a re-publication of DfT analysis. When the Department for Transport sought to bury the results of the 2010 consultation,having 'lost' our response, we raised the issue with them and forced a revised report to be produced accurately setting out the results of the consultation.
- Explained proposals and provided evidence. We met the Government and HS2 Ltd to explain our proposals and set out why we believed they represented a fair deal.
- Got support of the professionals. In 2011 we obtained the support of the Council for Mortgage Lenders, the British Bankers Association and the National Association of Estate Agents, as well as individual estate agents for the proposed approach. The CLA also promoted the Bond approach.
- Gained MP support. Members of Parliament including Steve Baker, Andrea Leadsom, David Lidington and Jeremy Wright publicly supported the proposal.
- Bond became one of DfT’s 3 options. We successfully fought for the Government’s 2011 Consultation on high speed rail to cover the Property Bond Scheme as one of the three options to be consulted on.
The 2011 Consultation on High Speed Rail showed that the proposals were well supported-98% of respondents who referred to the three options supported the Property Bond approach. By contrast, support for the option chosen by the Government, a hardship based scheme, elicited less than 30 supporters out of a total of 55,000 responses.
If you want to know more detail about HS2AA’s proposals in this area have a look at
HS2AA’s brief to MPs on the Bond, after it had been rejected in 2012
HS2AA’s short summary report about the options, the Department for Transport’s criteria and our specific recommendations.
HS2AA’s full report that helped us prepare our 2011 consultation response.
HS2AA’s full 2011 consultation response to Q7. We recommend you read this report if you want the detail, as it includes all the arguments and information we gleaned to make our case. It reviews all the different schemes that currently operate and describes the success of the Central Railway Property Bond Scheme on which our proposal is modelled.