What is Affordable Housing?

The definition of affordable housing is not clear-cut and it varies depending on whether it refers to rented or purchased property. Of course, there are variants within these two categories according to the location of the property in the U.K. For rented accommodation, the government’s definition is that an affordable home should not cost more than 80% of the average local market. Affordable housing for sale must be provided on the basis that mortgage payments would be no higher than those which would be paid on council housing rent and these must also be below market levels.

The shortage of affordable housing in the U.K. has long been recognised. In fact, it could be referred to as an affordability crisis in which the gulf between costs and the reality for the majority of the population has widened beyond sustainable measure. This is especially relevant in major cities such as London where 80% of the market level rental rate is still very expensive and not actually affordable for those in need of affordable housing. Home ownership has become increasingly difficult to attain, particularly for first-time buyers, with median house prices in England now being eight times higher than median earnings. This can be more extreme in London, where in Kensington, for example, the median cost is as much as 32.2 times higher than median earnings! Rental costs do not offer much relief where it comes to affordability in London. While the median private rental rates are 26% of median monthly earnings, this figure is much higher in London and stands at 75% in Kensington and Chelsea.

With the extreme rise in both rental and owned housing costs in recent decades, the government has rolled out several schemes to help first-time buyers and low-income earners get onto the property ladder. These are outlined below:

Shared Ownership

Shared Ownership properties are sold by Housing Associations. Buyers can purchase between 25% and 75% of the property and pay rent on the remainder, which is still owned by the Housing Association. There is usually an option for buyers to purchase a greater share of the property over time. This is known as staircasing. In theory, this is a great opportunity for young buyers to get onto the property ladder early in their career. However, in reality, even Shared Ownership homes are a struggle to afford for low-income earners, particularly those in and around London. This is why the government has launched new plans for properties to become available for as little as 10% ownership.

Starter Homes

The government announced a Starter Homes scheme in 2014, which would allow first-time buyers aged between 32 and 40 to purchase a home with at least a 20% discount on the market value. With properties priced at up to £250,000 around the country and up to £450,000 in London, this scheme could offer a great opportunity to younger buyers wishing to get onto the property ladder. Apart from age prerequisites, eligible buyers must also have a combined household income of up to £80,000 (or up to £90,000 in London) and be in need of a mortgage to complete the purchase. Cash buyers would not be eligible and the properties bought under this scheme and restrictions are in place to prevent buyers profiting through the scheme through resales on the main market.

The new buildings as part of this scheme would be developed on underused brownfield land, previously used for industrial or commercial purposes and this would be offered to developers without planning costs. While over 30 Local Authorities across England have signed up to deliver the first homes under the scheme, the first properties are not expected to be available to purchase until 2020.

Rent to Buy

Under the Rent to Buy scheme, properties are offered to those who do not own a home by Local Authorities for a reduced rental cost in order for them to save for a deposit to purchase shares in their home under the Shared Ownership scheme. This option is available for those who have a combined household income of less than £80,000, would not be able to purchase a home without assistance and who have an acceptable credit history.

Social Rented Housing

Social Rented Housing can be offered by Local Authorities to those whose needs are not met by the commercial housing market. Rents can vary but are never more than 80% of the local market rates.

Affordable Private Rented Housing

Affordable Private Rented Housing, like Social Rented Housing, must not cost more than 80% of the local market rates but is made available by private landlords as opposed to Local Authorities. Often provided as part of the planning obligations in new developments, Affordable Private Rented Housing is one of the solutions to the affordable housing shortage in the U.K. as Local Authorities have struggled to make provisions for growing demand.

Intermediate Rented Housing

The Intermediate Rented Housing scheme was launched by the government to allow Housing Associations to rent out properties to tenants with a household income of up to £66,000 (£80,000 for larger properties). Apart from providing affordable housing, this scheme allows Housing Associations to raise additional finance on the private market that could then be used to increase their supply of residential properties.

Despite the government’s efforts to combat the Affordable Housing crisis, there remains a chronic shortage of Affordable Housing across the U.K. with approximately 4.5 million people that have qualified for social housing, currently sitting on Local Authority housing waiting lists. Investment in Affordable Housing can help speed up the provision of accommodation to those in need. We believe everyone has a right to an affordable home that meets the highest standards in safety and quality. Working with Local Authorities, Care Providers, Commissioning Officers and Property Developers, we are committed to meeting growing demand and creating a positive social impact that will allow individuals and families thrive in the stability of their own home. For further information about buying, developing or selling Affordable Housing, please do not hesitate to get in touch!