The need for affordable housing has never been more prevalent. While rising rents are a good thing for landlords, high prices make saving a deposit for a home increasingly difficult for first-time buyers. But there are some solutions for those who would otherwise not have the opportunity to own their own home. Rebekah Commane reports.
The lack of affordable housing in England is a debate that is escalating, as more and more people give up hope of ever raising a deposit for a mortgage. And worse still there are those who can’t make ends meet when it comes to renting and require social housing, an area that has been effected by considerable government cutbacks.
Affordability
At a Westminster Social Policy Forum, the future of affordable rent and social housing was discussed.
Speaking at the event, Deborah Garvie, senior policy offer at housing and homelessness charity, Shelter, highlighted a stark increase in homelessness due to a “lack of genuinely affordable housing for people to live in.”
Garvie also revealed the startling fact that homelessness in England has risen by 6 per cent in the past year, reaching a five year high.
Generation rent
Figures from the Office of National Statistics have shown that the number of families renting from a private landlord in England has doubled since 2001, now standing at one in five, while the proportion of families who own their home has dropped by 13 per cent.
Shelter has warned that, unless the government builds more affordable homes to tackle the housing shortage, more families will join ‘generation rent’ and be forced to bring up their children in unstable private rented homes, or living at home with their own parents.
The fact that funding a deposit for a home is such a struggle is unsurprising in light of the latest figures from Nationwide, which show that house prices have increased again by 1.9 per cent, to an average £168,941.
And homelessness isn’t biased in who it can effect; it can happen to anyone, as was apparent at the recent launch of an investment strategy by Nottingham Building Society in Framework, an organisation for homeless and vulnerable people.
Government schemes
But it’s not all doom and gloom. The government have made some progress in increasing the availability of affordable housing through various schemes.
Funding for lending was introduced as an incentive for banks and building societies to lend low LTV (loan to value) mortgages to those with smaller deposits and this year, Help-to-Buy was launched.
This latest scheme has been met with mixed reaction from industry experts and it was labelled a ‘damp squib’ by some, who said that it could not sufficiently impact on affordability for aspiring homeowners.
The programme is made up of two elements.
The first consists of an equity loan with which you can secure at least 75 per cent of the cost of a property through a mortgage if you have just 5 per cent deposit saved. The remaining 20 per cent is covered by an equity loan from the government.
While the scheme is said to replace FirstBuy, these loans are open to first-time buyers as well as home movers on properties up to the value of £600,000. It got up and running in April and will run for three years. Around 4000 people had reserved a new home using this element of the scheme by early June.
The loan is interest free for five years; you will begin paying a fee on the sixth year after taking out the loan at a rate of 1.75 per cent, which will subsequently increase year on year based on the Retail Prices Index plus 1 per cent.
You will own the home and can sell it at any time but, of course, you will still have to pay back your equity loan if you sell before it is paid off.
The second element of the Help-to-Buy programme is the mortgage guarantee scheme, which is available to anyone who wants to buy a new build or existing property from January of next year; this part is worth a total of £130 billion in funding. The property value limit is the same as the equity loan side of things, at £600,000.
Although the equity loan side has just gotten off the ground, and the mortgage guarantee element is yet to start, some lenders are crediting Help-to-Buy with driving down loan to value rates, opening up the mortgage market to a greater demographic.
Speaking about the scheme, David Brown, commercial director of LSL Property Services, said: “While Help-to-Buy will have some advantages, it will favour the best-off tenants, who are able to build bigger deposits and more likely to get a mortgage.”
As well as Help-to-Buy, other government housing schemes include:
NewBuy and MI New Home
The NewBuy scheme was introduced in March 2012 to create 100,000 home sales by 2015 by making it possible to buy a property with a deposit of 5 per cent.
To qualify participants must be purchasing a new build, i.e. a home being sold for the first time or for the first time in its current form, which must be priced at £500,000 or less.
Right-to-Buy
The Right-to-Buy scheme allows council or housing association tenants who have been in situ for five or more years the opportunity to purchase their home.
Introduced in 1980, the scheme offers discounts of 35 per cent of the value of the property plus one per cent per year of residency after five years, up to a maximum of 60 per cent.
Flats are discounted 50 per cent with 2 per cent extra each year until the discount reaches 70 per cent. The maximum discount allowed on any property under Right-to-Buy is £75,000.
Shared ownership
This programme is run through housing associations and allows potential homeowners to buy a share of their property (between 25 per cent and 75 per cent) and pay rent on the remainder.
Shared ownership housing schemes are usually intended for those who would not otherwise be in a position to purchase their own home. To be eligible, your household must earn £60,000 a year or less and you must be a first-time buyer or no longer in a position to own your home.
David Bogle, CEO of Hightown Praetorian & Churches Housing Association, operating principally in Hertfordshire and Buckinghamshire, provide affordable housing and services for people who cannot afford to buy or rent at market rates.
For some years the association has been building houses for the shared ownership market, as well as mainstream housing for rent.
Bogle told What Mortgage: “Shared Ownership has proved to be one of our most popular products and allows people to access property for two thirds or three quarters of the cost of full ownership.
“It offers people, including key workers, the opportunity to get a start on the home ownership ladder. Last year we sold 104 properties under the shared ownership scheme and hit all of our sales targets; this year we are already ahead of sales projections.”
