BBC News this week reported on Battersea Power Station Development Company’s (BPSDC) apparent plan to today renege on the number of Affordable Homes to be provided under the planning permissions agreed.
How many people reacted from a mild scratch of the head to a full scale yell at the TV when the starting price of a studio apartment was stated as just short of half a million pounds.
“£464,000 is not affordable, I don’t understand.”
So what is Affordable Housing – that apparent contradiction that Politicians and Developers allow to trip off the tongue without further explanation to the common man.
The Government believes affordable rent should be at least 20% below market-rate but to purchase housing affordably it should cost less than on the open market but above the cost of mortgage payments would be made on the same property – well that’s clear then, or NOT.
I’ve recently had the privilege of working with a Housing Association in West London. I’ve been neck-deep in governance, regulation, legalities and everything to-do with new build property bar cement. So let me aim to release the flight of the foam telly brick, help explain a few acronyms and dispel some preconceptions fuelled by vague assumptions and misleading terminology.
The specification may not be as high-end but there is nothing particularly affordable about the properties marketed as such by private Developers nor those created by Not-for-Profit (NFP) Housing Associations (HAs) or other Registered Providers (RPs). Neither is the land on which these properties are built any more affordable than any other land sold for residential housing – quite possibly our island’s most precious commodity.
But agreed percentages of this quality housing are made ‘accessible’ to more than would otherwise be the case thanks to Section 106 of the 1990 Town and Country Planning Act and a number of financial support schemes from the Government. Perhaps a more accurate term then would be ‘Accessible Housing’.
The affordable units don’t always need to be integrated within a private sale development – preferable for utopian society long term but society to-date is such that it does detract from open market values achievable and in a tough market when we need to encourage build investment, diktats around quantities need careful consideration from both sides.
An agreement with the local planning authority in which Developers agree to pay money or provide Affordable Housing in order to secure required planning permission. Agreements may also cover contributions to education, open space and wider community benefits.
Financial support schemes
HELP TO BUY (H2B) – funding is available to anyone who has a minimum of 5% deposit and is looking to purchase a new build home, to be their only residential property, to live in and not rent out, up to the value of £600,000 in England or £300,000 in Wales.
The Government will loan up to 20% of the property’s value (40% in London) and, besides the 5% deposit, purchasers need to secure a 75% mortgage (55% in London).
Nothing is due on the H2B loan for the first five years. After that the homeowner owes 1.75% of the loan’s value, and this will increase every year by the retail price index (RPI) plus 1% so the Government can make a profit to help others the same way.
The purchaser can sell the property in those five years but will need to pay back the full loan so it’s not profitable to sell unless the value of the home rises – this of course is the case in any purchase and sale scenario.
The process is managed between the Developer, Solicitor, Lender and HCA so to benefit from the scheme the purchaser must just ensure the property is designated Help-to-Buy (check for logo on advertising collateral and links at the bottom of the page) and be guided from there.
SHARED OWNERSHIP (SO) – most initially wonder who they’ll be sharing with.
Even the Silent Generation (that’s the one before the Baby Boomers) remembers shared accommodation with family / students / randoms as a means of affording a roof over its head.
Happily, shared living is not a prerequisite of the SO scheme. The ‘share’ is with the Developer (Private, HA or RP) who will sell new homes on a part buy / part rent basis. Between 25% and 75% of the property can be purchased outright (or with a mortgage) and the rent collected on the remaining share is set at least 20% below market rate. The objective being for the home-owner to be able to purchase more shares until the property is owned outright – Staircasing.
It may be necessary for the purchaser to be nominated by the local authority as someone in particular need of that home. While local authorities can make their own nominations, the HCA prioritises as follows:
- MOD staff
- Council or HA tenants freeing up a property
- People living and working in the local area
- People living in the local area
- People working in the local area
- Other applicants
It may also be necessary to purchase the maximum share that is assessed as affordable for the individual by the HCA calculator but this is part of the process that the sales team and IFA must lead any prospective purchaser through.
SO is an attractive way for anyone focused on home-ownership to get on the proverbial ladder. However the developer has a duty to sell at market value as defined by a Royal Institute of Chartered Surveyors (RICS) practitioner. The property must go through a Red Book valuation (Red Book contains best practice guidance and mandatory rules in the undertaking of RICS asset valuations) every 3 months so if the agreed reservation price expires before exchange of contracts the price may rise – or indeed fall. To avoid this pitfall, purchasers must keep on-top of otherwise slow conveyancing solicitors or be prepared to lose out.
It is also important to remember that while a proportion of the property is rented, the Developer / HA / RP retains the jurisdiction of a landlord and even when Staircasing is complete clauses in the lease will still be applicable. There’s nothing to stop the owner selling their share at market value any time and having done so they may choose to purchase again under SO or find themselves in position with enough equity to buy on the open market.
LONDON LIVING RENT (LLR) – a new scheme aimed at Londoners with a maximum salary of £60,000 – this figure reflects that required for a 2-bedroom LLR home in London’s most expensive area which is in central South Kensington. Applicants must be unable to buy a home in their locality on the open market or through SO.
RPs will be obliged to set rent at lower than market rate, enabling tenants to save for a deposit and to enter the home ownership arena in due course – ideally within 10 years.
The average monthly rent for a two-bedroom LLR property is £970 compared to that on the Private Rental Sector (PRS) in London of £1,455. The benchmark for each neighbourhood is based on the average household income with an adjustment allowed for the number of bedrooms and LLR for a three-bedroom property will be only 10% higher than two bedroom rent to ensure family homes remain accessible.
LLR properties are to be available on a minimum three-year tenancy by which time they should have saved enough to be in a position to move on in the market. Providers of LLR housing must advertise the properties on the Share-to-Buy portal and candidates are assessed on income, and the standard affordability tests to ensure they can afford the rent while still saving a deposit for home ownership.
To-date there no LLR homes are occupant-ready but the London Assembly is allocating funds to local authorities and HAs and believe to see them available as part of newly built schemes within five years. Look out of the LLR website launching in April next year. Until then visit https://www.sharetobuy.com/firststeps for more information.
AFFORDABLE RENT – HAs are invited by the Government to charge 80% of the value of local privately rented homes. There are less expensive rents available from the council but the Affordable Rent scheme is designed for HAs to make a higher return to reinvest into more residential property. The incentive to the tenant is that these homes are new rather than those they may be able to afford on the open market.
This is just a selection of schemes through which our legislative powers strive to find ways to make housing accessible although supply remains the greatest dilemma.
As for the obligations of BPSDC these are for Wandsworth Council and BPSDC to agree.
If the financial climate now means the Developer cannot reach projected profits, the basis for the investment, while providing 636 Affordable homes (proven to lower prices achievable #justsaying) in an otherwise competitive riverside position within the newest Zone One district; would we rather see this £9bn investment in our city collapse or allow the council to accept the Developer’s offer to still provide 386 affordable homes, and three years ahead of schedule, with the outstanding 250 following the completion of the scheme potentially elsewhere in the Borough?
The swathes of new property rising across Nine Elms including with the eventual capacity to house circa 35,000 people comes to fruition in an increasingly difficult market. Developers may find themselves facing a quandary between void housing and Affordable housing and perhaps the tables will turn naturally down the line.
For now instead of grumbling about those investing in our capital city, rescuing an iconic landmark which has been the focus of failed schemes for quarter of a century, and building homes against the odds, let’s ensure individuals can access the right financial support and the right properties throughout the country to maximise what is available where it is available rather than bewail what, as yet. is not.
For Shared Ownership properties visit https://www.sharetobuy.com/
For Properties under the Help to Buy schemes: