It is no secret that the UK is on the verge of a housing crisis in certain areas. House prices have risen to such high levels in some areas of the country ‘ predominantly London and the South East ‘ that many people on low or even average incomes, cannot afford to buy their first home within reasonable distance from their place of work.
As workers flood out of cities in search of more affordable dwellings, price rises follow them like a black cloud as demand for housing in the suburbs and sur-rounding areas increases too. For many young workers, including key workers such as police, teachers and nurses, living and working in areas such as London it is simply not financially viable to live there ‘ meaning essential services are left crucially under-staffed.
Making property affordable
This problem is not new, but it is getting worse. Government initiatives ‘ such as shared ownership schemes with housing associations ‘ have been put in place. These schemes are funded by the Government and are run through local authorities. The aim of the schemes is for people who cannot afford to buy their own property can apply to buy a percentage of the property, with the housing association buying the rest. This means people who would not be able to get a mortgage for the full property value can still become property owners.
But despite the Government’s aim to help house thousands of workers over the next few years, demand is proving too high and waiting lists, which prioritise key workers, are preventing the scheme having the head-on effect that was intended. Although key workers must be prioritised as their placement in every part of the UK ‘ regardless of property price ‘ is essential, the problem is much wider and the majority of young workers in some cities are unable to get a mortgage for even the cheapest property.
Mortgage providers have tried to innovate products so that affordability does not rely solely on income multiples, but still many people are unable to get a mortgage.
However, an initiative to help key workers get a foothold on the property ladder in areas where house prices have soared out of reach has been launched by modular building specialists LiveIn Quarters.
Instead of concentrating on new ways to fund property purchase in high price areas, the company has attempted to address the housing problem from a different angle. It has said if there is no affordable housing in Central London, it will create affordable housing. And so was born the much-publicised mini suite.
The initiative, unveiled in March by London’s mayor Ken Livingstone under the name Keep London Working (KLW), is part-funded by the London Development Agency and housing association The Peabody Trust. It is offering people earning below £30,000 the chance to part-own a fully furnished one-bedroom studio apartment in central city locations for a fixed price of £65,000 ‘ compared to average prices that reach well over the £100,000 mark.
Launching the initiative, Livingstone said: ‘Too many key workers cannot afford to live in London. The London Development Agency is acting now with others to provide the high quality, low-cost accommodation that is urgently needed for key workers ‘ without which the public services that support London’s economic success could not function.’
The suites, designed by LiveIn Quarters, are meant to provide affordable properties without compromising on quality. With a surface area of just 26 square metres, the suites are cleverly designed to use space efficiently with the help of modern innovations such as curved walls, electronically controlled tapless water supplies, doorless showers and foldaway beds.
Beyond key workers
James Wright, chairman of LiveIn Quarters, built the first prototype of the mini suite in 1990 and formed the company in May last year. He believes the scheme should stretch beyond so-called key workers to everyone working in the capital who cannot afford to buy.
‘Key workers is a vague term ‘ people automatically think about nurses and teachers, but in our opinion someone that stacks shelves in a supermarket is also a key worker,’ says Wright.
The properties, which will also be available to rent, are aimed at providing an initial crutch to help first-time buyers on the property ladder. Slightly larger properties, named home suites and measuring 35 square metres, are also to be made available under the scheme.
‘We have decided to sell the mini suites at £65,000 and the home suites at £89,000. We then work out the market value by taking quotes from three local estate agents. LiveIn Quarters owns the rest of the equity, up to the market value. So if the property is valued at £100,000 ‘ the buyer would own 65% equity and we would own 35% equity,’ explains Wright.
Unlike traditional shared ownership schemes through housing associations, no additional rent is charged on the unowned equity for the first five years. The scheme is aimed at seeing part-owners sell back their share after five years ‘ LiveIn Quarters offers a no-negative equity guarantee by promising to buy back the share for the full £65,000. If people want to buy the remaining equity after the five years, they have to pay the full market value ‘ and a flat situated in Westminster, for example, is unlikely to be within buyers’ price ranges.
Wright says: ‘We presume that people will want to move on after five years. If they want to buy the rest of the equity, then they will be able to at full market value, but we do not anticipate many people taking up this option.’
Other shared ownerships schemes would, on the other hand, allow buyers to slowly increase their share of the equity so they can own the property outright when they can afford it.
Sticking to tradition
London-based Lambeth Building Society specialises in lending for shared ownership schemes. Peter Todd, spokesperson for the Lambeth Building Society, welcomed the new housing initiative but says traditional shared ownership routes may provide longer-term value for key workers.
‘Anything that stimulates the market and makes ownership easier has to be good. However, I do think shared ownership schemes with housing associations can provide a better deal as borrowers can own increased equity, reducing the rent they pay. If borrowers have to pay rent and are unable to increase their ownership of the property, it defeats the object,’ he says.
However, there is no doubt that Wright’s initiative is innovative. Everything in the design process has been thought out ‘ even the household bills. By linking up with Npower, the mini suites will also be supplied with low-cost energy to help cut down on outgoings.
‘We approached Npower who embraced the concept. We worked out the annual consumption of electricity for the whole block of flats ‘ which was around £5 a week. This means someone on a tight budget will not have to worry about paying for heating and lighting,’ says Wright.
According to Wright, the flats are also pre-engineered in factories which not only helps cut cost and time, but is more environmentally friendly, reducing landfill waste. As they are easily manufactured, the company is aiming to extend the concept to the rest of the UK and in addition to working with housing associations, also produce suites specifically for sale on the open market.
‘We have had tremendous interest from other cities ‘ especially Manchester ‘ and we would like to roll the plans out across the rest of the UK. There is nothing to say that once we reach a certain level, we will not be able to sell suites openly on the private market,’ he says.
Sign of the times
So could these bulk-made, cheaply manufactured blocks of suites be a sign of things to come? Could this be the answer to both inner-city housing problems and affordability issues for first-time buyers?
The growing problem of affordable housing in some areas is ongoing and although there have been pushes in the industry to help first-time buyers, a satisfactory long-term solution has not yet been found.
With the low interest rate environment borrowers are currently enjoying, lenders have, for example, been more lenient with affordability criteria. This has enabled some first-time buyers to buy properties they would not be able to afford through traditional criteria.
But, according to Todd, the key to affordable housing does not lie in product innovation. Some lenders have increased income multiples to allow first-time buyers to borrow more, but this may not provide a lasting solution.
‘Interest rates may be low, but this does not make housing more affordable,’ says Todd. ‘Strategies such as increasing income multiples are a short-term fix and do not address the real problem of increasing house prices.’
Indeed, most lenders and borrowers would agree there is little more lenders can do to reduce borrowing criteria without increasing risk to unreasonable levels. If the answer to the current affordability crisis does not lie in mortgage products, then developments in housing design could just hold the key.
This latest initiative by LiveIn Quarters may not provide the perfect solution, but certainly seems to be heading in the right direction. If we can solve the housing crisis, then there will be no need for borrowers to overstretch themselves in the first place ‘ making the lives of first-time buyers and those working in the mortgage industry that little bit easier.
Kirstie Redford is deputy editor
Mini suites are to be built in central London locations with equity sold at a fixed price to people earning below £30,000.
Buyers will pay £65,000 for a percentage of equity in a mini suite, depending on the full market value of the property.
Cheaper housing developments may mean first-time buyers will not overstretch themselves if they wish to buy in areas of high demand.