As house prices continue to rise, many potential first-time-buyers (FTBs) are finding it nigh on impossible to get onto the property ladder, making the need for affordable housing more acute day by day. But are the current solutions in place working?
Despite post-war Britain seeing a marked attempt by the State to intervene and relieve the shortage of housing supply, the UK still has a severe housing shortage.
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These shortages have led to house price increases and a continued dependence on the private sector for new homes, perpetuating the difficulties of affordable home ownership.
During the 1980s and 90s, the number of homes built and managed by local authorities decreased, while in the private sector expansion continued. Since Labour came to power in 1997, it has continued to endorse the Conservative ideal of home ownership, allowing council tenants the continued right-to-buy, and promoting the idea that home ownership should be available to other sectors of the community, with affordable home schemes such as Homebuy and key worker initiatives.
However, recent developments in the rent aspect of key worker schemes have led to questions on how committed the government is to making home ownership sustainably affordable. As rents increase above the rate of inflation, the schemes are taking a larger percentage of peoples’ disposable income.
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Sustainability
Under such schemes both the private commercial mortgage market and housing associations work together to allow individuals to buy a percentage of their own property.
However, while lenders and brokers are obliged to treat customers fairly, give best advice and ensure the consumer can afford the ‘part-buy, part-rent’ contract, they have agreed, it seems contradictory that government policy is making key worker schemes increasingly unaffordable.
Key worker schemes allow public sector workers to buy homes under a shared ownership agreement, allowing them to buy part of their property while renting the other part from a Housing Association.
However, the scheme has recently been criticised as public sector workers complain that rents are raising at double the rate of salaries.
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Despite rental increases being written into their leases, many key workers do not feel that their housing associations explained them fully when they took out their agreements.
Simon Webster, managing director at Facts & Figures Financial Planners Ltd, suspects another aspect of this problem is that many brokers advising on these schemes would have presumed that rents would go in line with inflation.
“Brokers advising on these schemes need to be aware of these problems and factor in rising rents when calculating affordability.”
The future
The Metropolitan Housing Trust claims that of the 22,000 key workers it has helped onto the property ladder it has only had seven repossessions. It seems that despite the problems associated with the rising rents of shared ownership schemes, no significant problems have occurred.
However, as rents remain tied to the Retail Prices Index and key worker wages correlate to a lower inflationary measure, the affordability gap is widening, and rates are rising.
The stark fact is that ,year-on-year, the rent aspect of shared ownership schemes will take a larger percentage of disposable income. If this continues it may only be a matter of time before we see this problem begin to bite.
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Webster says: “If we accept that shared ownership is a necessary piece of social engineering, it seems poor that government would leave these people in financial difficulties.”
While the future of affordable shared ownership remains questionable, there are benefits which are hard to dispute. The UK as a nation aspires to home ownership and to enable those to achieve this that might not otherwise can only be beneficial in the long term.
Should people find they can no longer afford their homes, most will have benefited from selling up and retrieving the equity of their share, which will have gained in value. Although the problems surrounding the rent aspect of shared ownership schemes could put some potential buyers off, people will usually benefit from their property gaining in
capital appreciation and in the worse case scenario could retrieve their share which in most circumstances will have gained in value.
This could make shared ownership a good investment, but does it make it affordable?
