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www.housing.org.uk
Annual Conference and Social
Housing Exhibition
17 – 19 September 2012
Sponsored by:
www.housing.org.uk
B8: Our housing offer – the future of intermediate
housing
Speakers: Richard Donnell
Director of Research, Hometrack
Brian Johnson
Chief Executive, Moat
Chair: Steve Hicks
Chief Operating Officer, Gentoo
The future of intermediate housing
NHF Annual Conference 18 September 2011
4
© Hometrack 2011
Key themes
> Intermediate market large and here to stay
> Mortgage market
> Low turnover and limited price falls
> Defining the size of the intermediate market
> How to fill the intermediate housing gap
> Income levels
> Products
5
© Hometrack 2011
Gross and net mortgage lending (UK)
Source: Hometrack
-50
0
50
100
150
200
250
300
350
400
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
Mo
rtg
ag
e le
nd
ing
(£
bn
)
Gross lending
Net lending
6
© Hometrack 2011
Mortgage market – funding, capital & regulation
Source: Hometrack simulation
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
11,000,000
12,000,000
2006 2011 2006 2011 2006 2011
No
lo
an
s
81-100% LTV
51-80% LTV
<50% LTV
>100% LTV
Originations Mortgage book Arrears/Repo/Fb’ance
<50% LTV
51-80% LTV
81-100% LTV
7
© Hometrack 2011
…. varied impact on headline house prices since 2007
-5%
0%
5%
10%
15%
20%
25%
30%
35%
-20% -15% -10% -5% 0% 5% 10% 15%
Price today as % of peak level
Pri
ce
ris
e s
inc
e t
rou
gh
Cambridge
Liverpool
Glasgow
Edinburgh
London
Birmingham
Brighton
Reading
Bristol
Leeds Cardiff
Manchester
Size of bubble is average price
8
© Hometrack 2011
Income to buy outright a 2/3 bed property
£0
£10,000
£20,000
£30,000
£40,000
£50,000
£60,000
£70,000
£80,000
£90,000
£100,000
London
S E
ast
East
S W
est
W M
ids
Y &
Hum
ber
E M
ids
N W
est
N E
ast
Engla
nd
Income to buy at average
Income to buy at lower quartile
Source: Hometrack
9
© Hometrack 2011
Size of intermediate market - England
Source: Hometrack
10
© Hometrack 2011
Income to buy outright (2/3 bed lower quartile) – W Mids
£0
£10,000
£20,000
£30,000
£40,000
£50,000
£60,000
Income to buy lower quartile
Source: Hometrack
11
© Hometrack 2011
Which intermediate product is viable ? - Solihull Two bed propertyGross income required for private rent or to buy outright
£27k
£33k
£39k
£46k
£28k
£32k
£35k
£39k
£0 £10 £20 £30 £40 £50
Lower Quartile
Average
Upper Quartile
90th Percentile
Gross Income (Thousands)
Income for private rent Income to buy outright
Rent 50% 60% 70% 80% 90% 100%
Lower Quartile £137 £87 £17k £14k £17k £19k £22k £25k £28k
Average £158 £100 £20k £16k £19k £22k £25k £29k £32k
Upper Quartile £173 £109 £22k £17k £21k £24k £28k £31k £35k
AR
Income
Proportion of Private RentAR
Value
Gross income required to afford different levels of private rent by price point
Rental
Value
S/O 25% 35% 45% 55% 65% 75%
Lower Quartile £123,000 £17k £19k £21k £22k £24k £26k
Average £151,490 £21k £23k £25k £28k £30k £32k
Upper Quartile £178,750 £25k £28k £30k £33k £35k £37k
Gross income required for shared ownership by initial sale %
Capital
Value
Initial purchase share
Source: Hometrack Tenure Viability Report – Solihull LA
12
© Hometrack 2011
Private renting not a universal solution
Source: Hometrack
13
© Hometrack 2011
Changing tenures impact on GDV and viability Indicative value of tenures as % OMV
Source: Hometrack calculations
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Outright sale Private rented Shared equity
(20%)
Shared
ownership
(40%) first
tranche
Affordable rent Social rent
% O
MV
14
© Hometrack 2011
Summary
> Intermediate market here to stay
> Size of intermediate market highly localised - variations by property size and type
> Key drivers are property prices and mortgage terms/availability
> Challenges from blurring definitions and confused customers – flexible tenures
> Growth in intermediate supply from a range of providers
15
© Hometrack 2011 September 26, 2012
Hometrack
6th Floor, The Chambers
Chelsea Harbour
London
SW10 0XF
www.hometrack.co.uk
www.housing.org.uk
Annual Conference and Social
Housing Exhibition
17 – 19 September 2012
Sponsored by:
Intermediate Housing
Brian Johnson
Chief Executive, Moat
Moat
• South East focus
• Mixed tenure
• Service quality
• Innovation
• Local HomeBuy Agent for Essex,
Kent and Sussex
• Develop 600 new homes each year
• Number of properties:
Rented and other 13,333
Shared Ownership 4,478
Equity Loans 2,889
Total 20,700
What is Intermediate Housing?
0
5
10
15
20
25
0 10 20 30 40 50 60 70
Annual income (£000)
Pe
rso
nal
savin
gs
(£) Full ownership
Social
rent
Intermediate rentIntermediate rent
Shared
equity
Shared
equity
??
Source: Moat data in W Kent 2009/10
Private rent
Shared
ownership
What is Intermediate Housing?
0
20
40
60
80
100
120
140
160
Social rent Affordable
rent
Intermediate
rent
Shared
ownership
Su
bs
idy
£0
00
Capital subsidy Revenue subsidy
Boundaries between products
are blurred:
• For rented, it’s not how funded but
who gets the property
• Low cost home ownership funding
similar to rented
• Who lives in the housing and how is
that occupation funded
• Next few slides will focus on LCHO
Shared Ownership and Shared Equity
Shared Ownership
• Part-buy/part-rent
– Shares purchased from 25% up to 75%
– 2.75% rent paid on remainder, increasing at RPI +0.5% annually
Shared Equity
• FirstBuy
– Equity loans of between 10% to 20% of purchase price
– Interest free for first five years. 1.75% loan interest from year 6,
rising at RPI +1% thereafter
Why do it?
• Spend £10,000 - £20,000 public subsidy
• Lock people into lifetime savings
• Recover (in net present value terms) half of that
subsidy through staircasing
• Housing costs in old age are reduced
• There is a lump of capital to help fund old age crises
• We believe that each home created £50,000 of social
value
• Right to Buy gives away £75,000 of subsidy compared
to ~£10,000 for shared ownership
South East sales
150000
155000
160000
165000
170000
175000
180000
185000
2009/10 2010/11 2011/12 2012/13
Sa
les
Va
lue
0%
20%
40%
60%
80%
100%
120%
Sa
les
va
lue
/va
lue
at
ap
pro
va
l
Sales price Sales price/value appraised
How does tenant income change over
time?
How does shared owner income
change over time?
Moving to full ownership
Conclusion: People’s circumstances are continuing to improve. Staircasing is
driven not by ability to pay but by potential for capital growth and desire to move
home – we need to change this.
0
50
100
150
200
250
2008/9 2009/10 2010/11 2011/12 2012/13
Re
de
mp
tio
ns
0
20
40
60
80
100
120
140
Sta
irc
as
ing
redemption staircasing
Moat’s growing conviction
• People should have access to subsidy when they need it, but not
when they do not
• People should be able to stay in their home for as long as they wish
• More flex on tenures
• Increased motivation to pay more rent when it can be afforded
and/or to move from rent to ownership and/or to staircase up
• Seriously question some products such as shared ownership for
older people where rented models or commercial equity release
models are available
How Moat see the product evolving
• Lifetime tenures
• Rents flexed up with incomes
• Shared owners strongly incentivised to staircase up
(carrot and stick)
• Same home can move through all of these tenures
(subsidised rent, open market rent, shared ownership,
full ownership)
Conclusions
• Intermediate tenures can deliver huge social value
• In the South East, the model works, is good value and
there is demand for it
• The sector must shift perceptions so that it is seen as a
sensible, value for money substitute for Right to Buy
• Re-design of aspects of all tenures is need to:
• Enable subsidy to be ‘popped out’ without people having to
move home
• Enable people to move between tenures in the same home
• Housing associations should lead the way on this and not wait for
the HCA or CLG to do this for us
www.housing.org.uk
Annual Conference and Social
Housing Exhibition
17 – 19 September 2012
Sponsored by:
