Home help

Oct 6 2006

How part-buy, part-rent schemes are helping some city dwellers on to the bottom rung of the property ladder. Marsya Lennox reports.

One person's "affordable" may be someone else's impossible dream. And though "affordability" is a word we are hearing more, it's all a matter of balance - what one, personally, has in the bank. Affordable homes, or the lack of them, has worked its way back into the headlines as the statisticians have come up with some stark new figures. We do not have sufficient numbers of affordable homes to meet the current need, and supply is much lower than it was in the mid 1990s. The optimistic thought that life begins at 40 takes on a new resonance as we learn that more than a third of working householders under the age of 40 cannot afford to buy. Court orders for repossessions have doubled since 2003 and the current rate of affordable house building is falling sadly short of the suggested minimum necessary. Empty nesters are a dying breed. Their nests remain cluttered up with frustrated offspring. And the only way they can turf them out is by helping to fund their home purchase. Just 20 years ago, lenders' rule of thumb was that one's outgoings on mortgage or rental costs should be no more than 25 per cent of one's disposable income. Couples were told that they might borrow two and a half times their annual income, the half being a gesture towards a wife's contribution, presuming that she would not work after having a family. First-time buyers must now do a different sum. The ratio of mortgage costs to average earnings has, at 36 per cent, now reached the peak recorded in 1990. Just a few years ago, one rarely heard about affordable housing in Birmingham. At least the developers kept a miserable silence on the subject. Neither did they particularly want to talk about the proportion, however small, of their smart new developments that was required to be handed over to housing providers as penance for their development ambitions. And while the new city living boom appeared irrepressibly upmarket, new schemes tailored particularly for the well-heeled, things had to change. Now, in the egalitarian spirit of a new age, one need not talk about affordable housing in whispers. It is no longer about housing so-called problem families who can't get a council house. It's about providing roofs over the heads of hard-working people, whether they are young, newly qualified and starting out, doing important jobs on lowish incomes or having to make it on their own after marital breakdowns. The debate continues. The housebuilders continue to cater for the bigger spenders. But right alongside the nicest city apartments are also the vital footholds for those with more modest aspirations. And there are brownie points to be won all round for each new phase of city housing that bucks the trend, proud to be called "affordable". Knight Frank in Birmingham has joined the discussion, welcoming the discounted covenant system that they believe may be the solution. New homes sold under this scheme are about 20 per cent cheaper to buy than market value, admittedly, not much help to everybody. But they are typically targeted at key workers on average incomes of under £25,000, or a couple earning under £40,000 between them. The covenants are not new, they have been offered for some time by Registered Social Landlords (RSL) as an alternative to the part-rent-part-buy, shared ownership schemes offered in many larger developments. But now these are being offered direct from the developer, a new idea in Birmingham, and proving to be popular. David Fenton, head of residential development for Knight Frank's Birmingham office, says: "Discounted covenants operate by putting in place an adequate discount structure to ensure new homes remain in the affordable sector for perpetuity. "The key to their success is to ensure that they are not too expensive for buyers on a tight budget in the first instance requiring a realistic discount ratio to be implemented from the outset. "Surprisingly, this strand of affordable housing has only recently been introduced into Birmingham's thriving private sector development market. "Yet so far, these limited opportunities are proving highly popular with the local authority, the private sector and the end user. "So much so that Birmingham City Council is now pushing for discounted key-worker units to be made available over and above alternative part-rent-part-buy initiatives and social housing schemes." There are several reasons for this. Developers need not hand over control of the usual requirement of 35 per cent of completed properties to a RSL. The homes sold under the covenant will remain affordable for all time, ensuring continued benefit for subsequent buyers. The individual buyer benefits by acquiring a brand new prop-erty at a discount without being tied into more complex shared ownership schemes. There were initial problems, reports Knight Frank. These were due to earning thresholds stipulated by the council and other restrictive criteria. The upshot of such rulings was that the allocated affordable units remained unaffordable to the target market. A pay packet under £25,000 may not be enough to obtain the necessary mortgage, even with the typical 20 per cent discount. To solve this problem at one recent city scheme, it was decided to provide a bigger discount on a reduced number of allocated affordable units. This meant that qualifying buyers needed to find only 50 per cent of the market value. It meant fewer units were sold with the covenants but it did the trick for the lucky few. And the idea found favour with "enlightened industry figures" who could see the potential for long-term city sustainability. "The purpose of affordable housing is to enable quality homes to come within reach of key workers, first-time buyers, or even those needing to buy a new home as a result of a change in personal circumstances," says Mr Fenton. The current policy requires up to 35 per cent of properties in schemes of more than 24 plots to be affordable by some sort of discount, shared equity or social renting, a big chunk of the gross development value. "By sensibly implementing discounted covenants - so that a compromise is struck, whereby fewer units are provided but at a greater discount - a workable system could be widely implemented whereby developers are responsible for matching qualifying candidates with realistically discounted plots on many more new homes schemes throughout central Birmingham," says Mr Fenton. Depending on the location, discounts of between 20 to 50 per cent would go some way to providing affordable housing where it is needed. The in perpetuity clause does limit a purchaser's future housing options, making it less likely they can move up quickly to full ownership. Other RSL schemes do build in a so-called staircase progression, allowing the acquisition of a larger share as prospects improve.