west of england “opening doors” improving access to affordable home ownership

West of England

“Opening Doors”Improving Access to Affordable Home

Ownership

Geoff Fox

Senior Associate

Study Objectives

• Evaluate affordability of shared ownership secured through S106 Agreements and delivered by RSLs in 2004/5 and 2005/6.

• Evaluate affordability of HC and LA funded shared ownership schemes delivered in 2004/5, 2005/6, 2006/7 and proposed for 2007/8

• Recommend options to ensure affordability of intermediate housing secured through the planning system for single people, couples and families

• Recommend options to ensure affordability of intermediate housing delivered with HC and LA funding for single people, couples and families

www.arkconsultancy.co.uk

Study Objectives (cont.)

• Monitor and provide regular reporting on the delivery of alternative LCHO pilot schemes:

– Improvement for Sale 50/50 retained equity model (Bristol)– Citywide Assisted Purchase (Bristol)– Open Market Homebuy in Rural Areas (North Somerset)– Very Sheltered Housing (North Somerset)– Community Land Trust (North Somerset)– LCHO without subsidy (North Somerset)– Discounted Market Retained Equity (B&NES)


Policy Definitions

PPS3 states that the definition of affordable housing, for planning purposes, is as follows:

– “Affordable housing includes social rented and intermediate housing, provided to specified eligible households whose needs are not met by the market. Affordable housing should:

– meet the needs of eligible households, including availability at low enough cost for them to afford, determined with regard to local incomes and local house prices;

– include provision for the home to remain at an affordable price for future eligible households, or if these restrictions are lifted, for the subsidy to be recycled for alternative affordable housing provision."


Definitions (cont.)

Intermediate affordable housing is:

• “Housing at prices and rents above those of social rent, but below market price or rents, and which meet the criteria set out above. These can include shared equity products, other low cost homes for sale and intermediate rent.”


WOE Home Ownership Programme2006/7, 2007/8, 2008/9


Cost of market renting vs mortgage costsfor owner occupation In WOE


Area/Region Market Rent pcm

Mortgage Cost pcm

Rents as % of Mortgage Costs

B&NES £797 £1,246 63.9%

Bristol £676 £1,213 61.6%

North Somerset £579 £1,014 57.1%

South Glos £608 £1,020 59.6%

South West Region

£648 £1,082 59.6%

Impact of Rental and Service Charges onAffordability


Household Income Required – 40% equity share with differing rent levels


Shared Ownership Costs Compared WithOther Tenures


Typical RSL On-Costs for Intermediate Home Ownership


RSL ON-COSTS PER UNIT

Employers Agent £1,250 + VAT £1,468.75

Legals £750 + VAT £881.25

Marketing £1,500.00

Development Administration £4,000.00

LA Enabling Fee £400

Valuation £100 + VAT £117.50

HQI Assessment £100

EcoHomes Assessment £100

Specification Uplift £2,500

Capitalised Interest £3,500

TOTAL £14,567.50

Rent Required to Repay Loan of £14,567.50,to cover RSL On-Costs, As % of Unsold Equity


Property Market Value

Rental Required as % of Unsold Equity

30% Tranche Sold

40% Tranche

Sold

50% Tranche

Sold

60% Tranche

Sold

£125,000 0.9% 1.0% 1.2% 1.5%

£150,000 0.7% 0.8% 1.0% 1.2%

£175,000 0.6% 0.7% 0.9% 1.1%

£200,000 0.6% 0.7% 0.8% 1.0%

£225,000 0.5% 0.6% 0.7% 0.9%

Family Budget based on Housing Costs as 25% Gross Income

Income/Expenditure £’sHousehold Income 25,000Household Expenditure & CostsTax and NI 4,581Mortgage and Rent (25% Gross Income) 6,250Service Charge and Council Tax 1,250Water/sewage rates and electric/gas 1,260Property insurance and maintenance/sinking fund 1,220Transport 2,000Food, hsehld goods/services, clothing, communication 4,170Communication 400Alcohol/restaurants, recreation, culture and holidays 1,800Education/childcare and health 2,340

Total Household Outgoings 25,271Surplus/Deficit (271)


Intermediate Home Ownership IncomeThresholds – Kingswood, South Glos


Intermediate Housing Income by Thresholdsby Local Authority


Affordable Market Values on Intermediate Home Ownership – Kingswood, South Glos


Executive Summary

• 25% of gross income as maximum household expenditure on housing – in Ark’s opinion.

• Affordability criteria is in line with national guidance (SHMA Practice Guidance 2007, v2).

• If a household can afford to market rent they should not be regarded as in need of intermediate housing.

• RSLs are serious about tackling affordability and are keen to look at selling lower percentage tranches or lowering rents.

• Most sales are made to applicants who appear to afford the product, and interviews with prospective purchasers ensure this.

• Lack of consistency between RSLs as to measurement of affordability. This impacts significantly upon target household income expected for product purchase.


Executive Summary (cont.)

• Market rents are currently significantly lower than cost of buying outright in the South West. Report produced by Steve Wilcox in 2007 shows market rents are approx. 60% of mortgage costs.

• The above definition means that intermediate housing should aim to assist households between social and market rents.

• Households falling in Ark’s established lower threshold of affordability for each SHMA zone would be best accommodated in social rented housing (unless substantial savings or capital assets).

• Likewise, households with income above the upper threshold of affordability could be expected to purchase or rent on the open market.

• The average price of intermediate home ownership should be at the mid point between the upper and lower income thresholds.



• Ark has demonstrated that the level of rent charged impacts significantly upon weekly housing costs, resulting on affordability levels.

• The RSL can charge rent based on a sliding scale in order to repay a loan over 30 years to cover its on-costs.

• LAs should take account of service charges when assessing affordability.

• RSLs should have a consistent approach to assessing rental and service charges.

• The 4 LAs, working with partner RSLs and the Housing Corporation should establish whether grant funded Newbuild Homebuy can achieve similar levels of affordability as schemes delivered through S106 Agreements.



• The 4 LAs should review planning policies in light of this study to consider the impact of entry level market rents as a method to establish the upper threshold of intermediate home ownership products.

• The 4 LAs should regularly review the raw data contained within this report as it establishes the lower and upper thresholds for intermediate housing as a whole.


St George’s House

29 St George’s Road

Cheltenham

GL50 3DU

T: 01242 252877

west of england “opening doors” improving access to affordable home ownership

Documents