Buying a family home used to be an affordable, achievable aspiration for many low and middle income families, those typically earning between £20-40,000. But not anymore. That’s the finding in Shelter’s new report on how low to middle income families are faring in our housing market.
Over the last decade, the number of low to middle income families buying homes has been in steady decline. For many, their only option now is to raise their children with a backdrop of short term tenancies in England’s insecure private rented sector, where they are nine times for more likely to move than families with a mortgage. No wonder, then, that renting parents worry about giving their children the stability they need to flourish in school.
Our new analysis finds that some 73% of low to middle income families are not able to afford the monthly costs of a standard 90% mortgage on a family home. We estimate that 1.8 million families in this bracket cannot afford to buy a family home.
Families are locked out of owning a home because house prices are too high, meaning families need to borrow large amounts of money to buy a home, which means unaffordable monthly costs.
Politicians acknowledge they need to build more homes, and help ordinary families struggling to get a stable home. But will their actions help?
The current big ticket policy is Help to Buy, which offers low deposit 95% mortgages. Not only does the main bit of Help to Buy not have a direct link to new homes being built, but low deposits mean bigger mortgages, which are even less affordable to low to middle income families. Almost 2 million (78%) low to middle income families won’t be able to afford a family home with a 95% mortgage.
The smaller part of Help to Buy offers five year interest free loans of up to 20% of the value of a new build home. This would be affordable for half of England’s low to middle income families, but it is small in scale – only 74,000 of these loans will be available over three years, with no guarantee they will go to low to middle income families.
Some decades ago, a fair number of these families might have expected to get a social tenancy. But as our short supply of social homes has become ever more rationed, low to middle income families are increasingly aware that they are unlikely to ever get one.
Shared ownership has been a longstanding response, and our analysis shows that it is the most affordable option for families. Up to 95% of low to middle income families could afford a family home through the shared ownership model.
But shared ownership hasn’t yet fulfilled its potential. Fewer than 1% of households in England are shared owners.
It hasn’t managed to achieve major scale because successive governments have kept launching new piecemeal shared ownership schemes, changing the rules of the game, making it hard for consumers to know their options, and for mortgage lenders and the wider industry to get behind it in a meaningful way.
The market hasn’t been designed around consumers’ needs either. Applying for shared ownership has meant sifting through conflicting information on council and scheme websites – leading many to think that they are not eligible when they are.
Once you are a shared owner, there are often restrictions on selling the home on the open market, and for shared owners to move from one shared ownership home to another. This makes it difficult for families to respond to their changing circumstances – having another child, moving for a new job.
Nevertheless, the shared ownership model offers the most potential for England’s low to middle income families. We need a lot more of it, and it needs to operate much more like the mainstream market.
Our report published today Homes for forgotten families: Towards a mainstream shared ownership market, outlines how a ‘high street’ shared ownership market would work to help these families afford a decent, stable home that meets their needs. We make proposals for simplifying the eligibility criteria, offering smaller shares to make it affordable to a wider group of families, and making it more straightforward to sell shared ownership homes and move within the market.
We want to see politicians lead the way in creating a bigger, more mainstream shared ownership market. A commitment of £12 billion over four years could provide affordable families homes for 600,000 forgotten families, and making substantial headway in reducing our homes shortage.
This would need to come alongside policies to build affordable and social rented homes, as well as the more fundamental reforms to our housing and land markets needed to deliver the long term conditions for building enough homes.
As the 2015 General Election approaches, and with house prices on the rise again, further pricing out low to middle income families, politicians will need to take urgent action to improve housing for this critical group. Our proposal should be top of their pledge list for improving the living standards of ordinary families in England.