Supporting Homeownership

Delivering housing solutions and products for excluded lower income households

Its about to get harder!

Since 2007/8 there has been an enormous change in the economic environment in which housing delivery operates. This is not only attributable to the economic downturn but also the cost implications of rising sustainability standards. Its probably going to get worse as the current government has entered into a strict regime of reducing budgets and fiscal austerity

Local Planning Authorities, developers, housing associations and other stakeholders have had to‘re think’ housing delivery models and re invent the mechanisms that have traditionally worked so well. This has led to a significant increase in the development of alternative and innovative delivery models and products to support new housing.

The impact of the current down turn

The principle effects of the down turn in relation to the delivery of affordable and intermediate homes have been:

A sudden and severe contraction in the availability of credit, leading to reduced mortgage lending. This along with a general economic slow down, led to the collapse of house prices. Land purchased/negotiated for new build development before the down turn was usually purchased for prices much higher than it is currently worth and reduced sales values make financial viability increasingly difficult and even more so if there is an affordable housing provision required.
Lender confidence has been much reduced and lending only to low risk clients with significant deposits is now the norm and the choice for purchasers has been significantly reduced as loan to value ratios have reduced. This has created a new ‘excluded middle market’ for households on average income levels but without prospects of buying. This has fuelled demand and interest in market rent and other Low Cost Home Ownership products such as rent to purchase, deposit products and intermediate rent.
The contraction of credit availability is not limited to individuals. Even if developers can present financially viable schemes, there is a lack of credit being made available by banks to lend to housing associations and developers and where it is being offered it is at more expensive rates which further tightens the overall scheme viability with obvious knock on effects to the price developers can pay for land or their ability to fund infrastructure costs.

Part of the Government response to the economic down turn has been to introduce a range of new products and many Local Planning Authorities, developers and housing associations are introducing bespoke products that ‘mirror’ these products. They may not all strictly form part of affordable housing for rent or sale as defined by Planning Policy Statement 3 but do meet a growing ‘middle market’.

The excluded middle market v’s strict affordable market (they are both important)

This newly emerging market middle market is unable to access homeownership because of increasingly complex barriers to purchase such as the availability of finance and lack of deposit. While some relaxation of the barriers created by the down turn may occur in the next few years, there is unlikely to be a return to lending on pre June 2007 terms because regulators have realised the dangers of excessive exposure to the wholesale money markets for long term lending. Part of the post credit crunch regulatory risk environment will be stricter controls on the sourcing of funds for home owner mortgages. Additionally, rules on lenders capital adequacy will be strengthened i.e. the higher “loan to value” mortgages provided by lenders and the higher provision in deposited funds required. The more capital lenders have to keep “on deposit” the less borrowing and on lending they can do. Deposit requirements will remain high.

This presents Local Planning Authorities with a new priority group who can sustain home ownership but require support to access homeownership or long term intermediate rented homes. This creates an interesting debate about the extent that housing delivery, for those that require support, should focus on affordable housing for those in need versus the increasing focus on the ‘excluded middle market’. In areas where household income to home ownership ratios are higher than average, the excluded middle market will be increasing significantly and intermediate products could play an important role.

So what would help?

Arc4 has been working with a range of clients including local authorities, housing associations and developers to Introduce products that support people into the tenure of their choice and develop innovative models to support viability of schemes going forward.

We have introduced products that enable first time buyers to access a cash deposit from the public sector or housing association toward the deposit on a property. The product is designed to support first time and other buyers without equity to raise the increasing deposit requirements. Its time limited, recycles quickly and very popular.

Our rents to purchase products are flexible, popular and work without grant. They work on new build homes or existing homes and help to bring empty homes back into homeownership. Working on intermediate and market rents, the products support a wide market that require support.

Our Mortgage guarantee products enable simple access to private finance for purchaser and can negate the need for despites at all. Housing associations can set them up.

Our shared equity products use council assets to fund chares such as land and enable purchasers lower purchase access and Councils the opportunity to recycle funding. We can also support delivery models that improve viability by utilising public land, interest free loans to reduce private finance costs, uses new homes bonus cash in schemes.