In our general Housing page outlining the problems with housing in Whitby we touched on the aspect of affordability, particularly when you pose it relative to the local earnings. It would be a good exercise to expand this with the case in point of a new build property currently being offered.
Let’s meet a 2 bed semi-detached house on “Green Lane” via Together Homes listed as “shared ownership”. Note that this is an example, not just picking on the Green Lane area development, since Barratts “Abbey View” also has similar properties at similar pricing.
This house, being shared ownership, is advertised as “Shared Ownership is a way for people who may not normally be able to afford to buy a property on the open market, to be able to purchase their ideal home in an affordable way“. It is for 40% ownership with an asking price of £84000. The implication is that the cost of the house is circa £210000.
Shared Ownership .v. Full Ownership
Let’s just assume you have a 10% deposit, so that is £8400. This then implies a mortgage of £75600 over 25 years. The mortgage component would mean payments of just under £500/month at current interest rates. Being shared ownership there would also be a rent to pay for the other 60% ownership, hence a stated ~£290/month, plus a service charge (buildings insurance, estate maintenance, etc) of ~£20/month. In total you are looking at ~£810/month.
Let’s for one moment consider if we simply bought a property like this outright. The going price, from earlier “Abbey View” ads had a 2-bed semi of this nature around £210000. In that case, assuming we are a first time buyer, we would have the UK Government “First Homes” scheme, and be able to get a 30% discount (we explained in our Housing page how a larger discount would be effective in an area like this, but 30% is the current number). Hence the asking price would effectively be £147000. This would, at current interest rates, work out as £765/month (assuming 10% deposit of £15000). Add to that insurance and maintenance fee and you have ~£785/month. Note that this is lower than the “shared ownership” number above since we used a higher deposit (£15000 .v. £8400).
Are “shared ownership” options really making things much easier for people? Only slightly if you have a small deposit.
How Affordable Are They?
When defining the affordability we have to put it in context of local earnings. This table shows ONS data for what people in the Scarborough borough earn (2021 data, since latest available), with Whitby earnings considered to be not dissimilar. Provisional data for 2022 suggests a 5.5% increase in these figures.
| Location | Mean | 10th % | 20th % | 25th % | 30th % | 40th % | Median | 60th % | 70th % | 75th % | 80th % | 90th % |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Harrogate & Knaresborough | 31,635 | 10,822 | 15,203 | 18,526 | 20,845 | 23,963 | 26,849 | 29,772 | 33,793 | 36,185 | 41,870 | x |
| Richmond (Yorks) | 29,694 | 9,167 | 16,371 | 18,341 | 19,445 | 22,460 | 30,222 | 36,182 | 38,400 | x | x | x |
| Scarborough & Whitby | 25,706 | 9,126 | 12,474 | 14,199 | 16,240 | 20,172 | 23,443 | 27,528 | 30,635 | 32,483 | 35,945 | x |
| Selby & Ainsty | 31,975 | 10,391 | 17,371 | 19,017 | 20,358 | 24,047 | 27,869 | 31,906 | 35,992 | 37,501 | x | x |
| Skipton & Ripon | 25,240 | x | 10,418 | 13,481 | 15,535 | 18,936 | x | x | x | x | x | x |
| Thirsk & Malton | 26,341 | 9,632 | 15,980 | 19,350 | 20,679 | 22,388 | 23,665 | 26,417 | 30,868 | 33,118 | 35,639 | x |
Let’s just take the case of purchasing outright for simplicity of calculation. Previously, with low interest rates, it was considered acceptable to get a mortgage of up to 4.5 times gross salary. With current interest rates, it would be unwise to borrow greater than 3.5-4 times gross salary for any mortgage (when going the full ownership route). For £147000 and 10% deposit (£15000), that would be a salary of at least £33000 (using 4x salary as basis). Only with lower interest rates would people with lower salaries be able to contemplate this (i.e using 4.5x salary as basis).
From the earnings listed for this area, very few people would be able to contemplate purchase of such a property unless they had a much more significant deposit. Couples would be able to look at say 3.5 times their joint salary if both were earning, and that then could include more people as potential purchasers, but still it would not be realistic for the majority.
The definition of “affordable” clearly needs updating to reflect average earnings for that area, otherwise it will continue to be seen as laughable. Councils ticking off numbers of “affordable homes provided” are simply ignoring the problem.