Can housing be affordable?

Creating our affordability model

We reconnected with Naked House and found we both had two major challenges: the government was trying to ban ‘ground rents’ on the basis that some have been misused. Some larger developers had sold leasehold houses with clauses enabling ground rents to double every 10 years so making the homes expensive and unsaleable. Community Land Trust groups were campaigning to include exemptions for community groups but these clauses needed careful working out. (In the end they were successful and CLTs are exempt from such charges.)

The second challenge was how to make the model affordable, as buying land is a significant upfront cost. For a family buying, using the ground rent model they get a house at say 1/3rd below market price (1/3 being value of land). You could call it a ‘shared equity’ model as they own the house and have a mortgage for that but pay rent for the land – or like owning a flat.

We based our workings on the following:

  • For a house price of £450k (average for Enfield, although many houses are more than this), excluding say 1/3 for the land value, an average family could get a mortgage 5 x their joint incomes.
  • This could equate to around £300k and, assuming they could find 10% deposit, a mortgage at 3.5% apr would cost around £1,300/month, based on a 25 year product.
  • The land value would be converted to a ground rent which they intended would be an annual charge calculated as 5% of the land value (if, for example, this was £150k).

Worked out in this way, the land proposition would be a good deal for the local Treasury, as it promised to recover the sale value of the land in a roughly 20 year period, and then would continue to deliver non-tax revenue to the local authority for the long term.

However, it is no longer affordable for the families if, on top of the mortgage, they have to pay 5% of £150k = £7,500 per year (or £625 month). We felt that this additional cost meant that 5% was clearly too high.

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