Types of affordable housing - tenure types
What is Affordable Housing?
The National Planning Policy Framework (link opens in new window) (NPPF) defines affordable housing in the following terms:
‘Social rented, affordable rented and intermediate housing, provided to eligible households whose needs are not met by the market.
Eligibility is determined with regard to local incomes and local house prices. Affordable housing should include provisions to remain at an affordable price for future eligible households or for the subsidy to be recycled for alternative affordable housing provision.’
There are various types of affordable housing; these are all designed to meet a particular need according to local incomes and house prices.
The following sections will help to explore the various types or tenures within affordable housing.
Social Rented Housing
Social rented homes are owned by either local authorities or registered providers of affordable housing (RP's). These organisations charge a rent which is set by government guidelines through the national rent regime.
These rents are typically quite low and are generally affordable to the majority of people.
Eligible households are those that can demonstrate that they are a British citizen or a citizen of another country with the right to stay in the UK. Those from an EU accession or another country must have no restrictions on how long they can stay in the UK and they must have recourse to public funds.
The majority of occupants will either be earning a low wage or household income and tend to receive assistance from housing benefit. The amount of housing benefit or local housing allowance (LHA) received usually covers the costs of the rent.
Councils and RP’s can continue to deliver social rented housing if they can make it financially viable without government subsidy.
Affordable Rented Housing
Affordable rent is subject to rent controls that require a rent of no more than 80% of the local market rent (including service charges, where applicable). As local market rents vary from place to place, these are measured by the amount of local housing allowance administered in a particular area.
For Central Bedfordshire, 80% of the average local housing allowance is not overly expensive for our residents and those who receive housing benefit will be able to cover most of their rent with their housing allowance (although some top-up may be required). The only exception to this is households who live in a 4 bed property who will be expected to pay a higher affordable rent level.
The same eligibility requirements as above would apply.
The term 'intermediate housing' describes a range of homes for sale and rent provided at a cost above social rent, but below market levels subject to the criteria in the National Planning Policy Framework’s affordable housing definition above.
These can include shared equity (shared ownership and equity loans), and intermediate rent.
Homes that do not meet the National Planning Policy Framework definition of affordable housing such as ‘low cost market’ housing, may not be considered as affordable housing for planning purposes.
An occupier will typically buy/mortgage a share of the new build property from a housing association. The association keeps ownership of the remaining share and the occupier will pay rent on this share, as you would to any other landlord.
In Central Bedfordshire the rent on the remaining share is derived from 1.75% of the property value.
An occupier can buy up to a 75 per cent share in a property. However in Central Bedfordshire, the share for sale is initially set at 40% of the properties open market value with the ability of people to purchase additional shares in the property over time; this is known as ‘staircasing’.
For some, it can become expensive to be paying a mortgage on the purchased share as well as a rent on the unsold equity. Many households will find that their total monthly outgoings are high.
Occupiers of shared ownership housing are likely to be eligible for housing benefit however the total cost of their monthly outgoings will be more than the local housing allowance.
For the reasons above, households best suited to shared ownership will be on a moderate household income. The eligibility criterion requires that households earn less than £60,000 a year as a household to qualify for shared ownership housing.
Help to buy/ Shared equity
Help to buy from April 2013 is a new government scheme to help homebuyers who don't have enough money for a deposit to buy a home. This can be either a new build or an older property.
It’s an equity loan scheme which provides a loan of up to 20% of the cost of a new build home. Homes costing £600,000 or less will qualify for the scheme, so the maximum loan available will be £120,000. You will have to get a mortgage for the remaining cost of the home, and this must be a capital repayment mortgage.
A help to buy equity loan is interest free for the first five years. In year six, a fee of 1.75% is charged, and this will rise every year by a minimum of 1%. You will make a monthly payment from your bank account. The fee does not repay the loan, but you can repay this separately.
The equity loan can be repaid at any time within 25 years or the term of the mortgage, or when you sell the home.
The difference between shared equity and shared ownership
The differences between shared equity and shared ownership are complex, but generally, with shared equity you purchase ALL of a property and legally own ALL of the property. However, the key point is that your deposit comprises a generally sizable equity loan making up the difference between the mortgage and purchase price (i.e. to a large extent, this shared equity loan is your deposit).
In contrast, shared ownership schemes are usually undertaken whereby you only own a specific share as a lease on a shared ownership property (normally owned by a housing association), and you can only achieve 100% ownership by 'staircasing' up from shares of 25%+ to full ownership.
With shared equity there is generally a requirement to clear the equity loan within a typical period of 5 to 10 years. Shared equity is generally provided by house builders and shared ownership by housing associations, but there are some housing associations with allocations for the help to buy equity loan scheme.
The Strategic Housing Market Assessment (SHMA) update 2015 has identified a tenure split of 73% affordable rent and 27% intermediate tenure which will be applicable on all sites meeting the qualifying threshold for affordable housing. This tenure split applies to the whole of Central Bedfordshire
To apply for housing
For further information in relation to shared ownership and help to buy please visit the Key Homes East (link opens in new window) website or call them on 03333 214 044.