What is a housing co-op?
Housing co-operatives are not-for-profit ‘registered societies’. They allow people to control their own housing, without actually owning it personally. They are governed by their tenants/members. All tenants are members and all members need to be tenants or prospective tenants.
Housing co-ops allow grassroots control over housing, providing rented homes where the tenants are (collectively) their own landlord. The organisation is run according to co-operative principles, giving everyone an equal say – and an equal responsibility – in the management of the housing.
Self-management has the additional benefit of allowing us to provide housing in an affordable way while also having the autonomy to make improvements not only reactively but pro-actively. Finances can be planned with a mind to protecting against excessive rent rises while allowing for a long-term approach to maintenance.
Should the co-op cease to exist, its assets have to stay within the co-operative movement; they cannot pass to the members or be used to invest outside the movement. Thus, by coming together and acting co-operatively, housing remains in mutual ownership.
What is a housing co-op?
What is loanstock?
Anyone over the age of 18 can invest in Varna House Co-operative (VHC). VHC is regulated by the Financial Conduct Authority (FCA).
Loanstock is the term we use for money invested in a co-op. The key advantage of loan stock is that it is a direct investment, so the full amount goes directly into the co-op.
The system is best described as a type of ‘fixed-term investment’ – this means people lend money to the co-op for a fixed period of time. The co-op pays interest to the loan stockholder, and VHC will issue an extra loan stock certificate to cover this interest each year. At the end of the set period the investor is paid back in full including the interest.
The co-op does not deduct tax from the interest – it is the investor’s responsibility to declare the interest in a tax return. If anyone receives more than £250 interest in a year, the co-op is legally obliged to make a special declaration to the local tax office.
The loan stock is an unsecured investment. Loan stock investors do not own equity in VHC. However, the reassurance that we offer is that in the event of a default or failure, the co-op will be able to sell the house and repay investors in all but the worst case scenario.
Loan stock must be issued for a set period of time – when we call out for funding, we will receive offers from multiple investors and then negotiate the length of some of these loans to spread out repayments. For an example of how this work, download our investor pack.
How do investors get paid?
Anyone over the age of 18 can invest in Varna House Co-operative (VHC). VHC is regulated by the Financial Conduct Authority (FCA). Investors propose an investment amount, loan term and interest rate, for example, £5000 over 10 years, with an interest rate of 3.5%. If we accept this offer, we will agree a start date together, as well as a repayment scheme. Some investors choose to compound their interest and receive a single repayment at the end of the loan term, others prefer to be repaid a fixed interest payment each year. If you’re interested in investing in Varna House, get in touch at investors@varnahouse.org.
What happens when loanstock and mortgages are completely repaid?
Once loanstock is repaid, the income from rent will be higher than the mortgage repayments. The resultant surplus will be used to invest in other fully mutual housing co-operatives or to purchase an additional property for VHC, to house more tenants. This helps to further expand the co-operative movement, and liberate more housing into common ownership.
How have the financial plans for Varna House Co-operative been developed?
Varna House Co-operative (VHC) is a member of Radical Routes, a large network of housing and worker co-ops. They have developed working financial models, accepted and referenced by mortgage providers and the Financial Conduct Authority. These models have been used successfully by dozens of active housing co-ops and are continually improved and developed in-line with changes in the law. VHC uses the Radical Routes financial model to calculate and plan investments, finances and returns. We are also supported by an accounting firm who specialise in co-operative accounting. A detailed model of our financial plans can be found in the investor pack.
I’d like to donate instead of invest, is this possible?
Of course! If you are intersted in supporting Varna House Co-op, you can donate here. Alternatively, you could offer loan stock with a low interest rate. Low-rate loan stock options help to support us with cash flow when we need it, but have a minimal net cost to you, the investor.