HC 1652 Communities and Local Government CommitteeWritten submission from Moat

About Moat

1. Moat is a housing association providing affordable homes in thriving communities for people in the South East of England. For over 40 years, we have delivered high quality general needs homes for affordable rent, supported accommodation and tenancy support services. Employing approximately 400 people, we provide excellent customer service to the residents of our 20,000 affordable rented and shared ownership homes.

2. Moat is one of the Homes and Communities Agency’s development partners and is also the appointed HomeBuy Agent in Essex, Kent and Sussex. We have provided homes for low cost home ownership since the early 1980s, and continue to help first time buyers with a range with a range of intermediate housing options.

Submission

Summary

3. There are two specific tenures that we would like to offer our expertise on: affordable housing and shared ownership. We believe that both of these tenures are vital to the overall housing mix.

4. On affordable housing, it is our view that housing supply could be increased with further tenure reform. Our reform proposal (outlined below) would be aimed at ensuring a more efficient and targeted use of public subsidy whilst allowing people the security to remain in their homes.

5. On shared ownership, there is work to be done on capital adequacy regulations. This is an area that is feeding reluctance among lenders to both: lend for shared ownership products and; engage in the implementation of new products. The consequence of this is increased reliance on public funding for further development.

6. Therefore, it is our view that ensuring a combination of tenure reform and correct financing arrangements for both affordable housing and shared ownership will be vital to securing adequate supply.

Affordable housing

7. It is Moat’s view that there are two main methods of increasing the supply of subsidised affordable homes. The first method is to develop new homes, at a cost to the taxpayer through capital grant. The second method is by “shifting” more residents from subsidised homes into non-subsidised tenures.

8. In order to achieve the latter—with a view to increasing the supply of affordable housing with minimal-to-no extra public subsidy—there is a need for further tenure reform. We deliberately use the term “shifting” rather than moving, as we believe this can be achieved without the need to evict tenants. In other words, we aim shift the tenure without moving the resident.

9. In order to make better use of resources, as well as to potentially increase supply of affordable homes, we propose an alternative model, designed as an enhancement of the Affordable Rent model—not a large-scale reconstruction.

10. In short, as an alternative to terminating tenants’ tenancies as their circumstances improve, we suggest an amend to the Affordable Rent model that would allow registered providers to charge full market rent where circumstances warrant it. It would consist of the following:

(a)a review of rent affordability against the income of residents every set number of years (for example, every two or five years);

(b)where residents are able to pay full market rent for two reviews in succession, their rents would be increased to full market levels; and

(c)when a resident is placed into the full market rental category, we would offer the opportunity to move to shared ownership—with the normal rent discounts that apply within this model;

11. Most importantly in the context of increasing housing supply, we propose to ringfence the additional revenue raised through this model and reinvest it back into the development of more homes.

12. Our aim through the use of this model would simply be to increase the supply of affordable homes, without placing extra strain on the public purse. This can best be achieved by shifting more residents from subsidised homes into non-subsidised tenures.

Shared ownership

13. Set against a background of current statistics, it is of little surprise that shared ownership remains a well-regarded and popular product: the average age of a shared ownership buyer is 32 years, which compares to 37 years of age on the open market.1 In 2007–08, the median income for households purchasing a shared ownership product was £25,832, compared with £33,680 for shared equity purchases and £38,900 for open market purchases.2

14. In 2008/9 44% of shared ownership buyers had incomes below £25,000. Almost a quarter had incomes below £20,000.3

15. As a result of the combination of stubbornly high house prices, poor mortgage availability and the rising cost of private rents, demand for shared ownership products remains very strong.

16. From a taxpayer perspective, shared ownership is also desirable. The subsidy requirement for shared ownership is equivalent to approximately a quarter of that for social tenancies.

17. Despite its many advantages, shared ownership has not become available on the scale necessary to ease the UK’s housing crisis. In large part, this is due to lenders’ high deposit requirements combined with the limited number of mortgage products available.

18. Current regulations on capital adequacy are compounding the reluctance of lenders to both: provide mortgage products for shared ownership, and; engage constructively in the implementation of new products that reduce reliance on public funding to bring affordable homes to the market.

19. It is our view that until the Financial Services Authority (FSA) reviews its capital adequacy requirements to more appropriately reflect the true risk4 associated with shared ownership products, lending for these products are unlikely to increase—and therefore, nor will supply of this type of housing.

20. There is some concern that the best efforts to stimulate housing supply may be significantly undermined by an instrument of policy that could—and should—be altered. It is our view that the financial regulator’s focus should be sufficiently broad as to consider the impact of policy on the economy as a whole.

21. Largely as a consequence of the regulator’s stance described above (para 16), lenders are reluctant to engage with housing associations to develop new products, or indeed, to increase supply of existing products. It is of concern that this could be the case on a product that is of no greater risk to the banks, and of lower cost to the public purse.

22. Clear guidance is needed from the FSA for lenders to work constructively with housing providers on products that meet acceptable risk criteria for all parties. In the absence of such guidance, large amounts of public money will need to be pushed into low cost home ownership products in order to increase supply.

October 2011

1 Promoting Shared Ownership Group: Shared Ownership: Facts& Figures, 2010.

2 Blue Sky: The Role of Shared Ownership in the Future Housing Market—A Discussion Paper, 2010.

3 Promoting Shared Ownership Group: Shared Ownership: Facts& Figures, 2010.

4 Shared ownership defaults stand at 0.38% compared to 0.42% for conventional mortgages—equivalent to 10% less risk of default.

Prepared 1st May 2012