Fordham Research

News

 

 

Help for the Aged article by Richard Fordham

Politicians have been warning about the Pensions Crisis for years. It is a major problem: we are living much longer and the UK is going to be short of cash. Not a pleasant combination for older people. But the high values of Britain’s housing market provides help. Even the Credit Crunch has not removed the substantial equity values in housing. Over a quarter of us are ‘older’. Around three quarters of older people own their home.

One possible solution to the dilemma of keeping us going in reasonable style for the longer lives we hope to lead is equity release. This involves a partial ‘cashing in’ of the equity. Few want to liquidate their equity entirely: it is insurance for a rainy day and an inheritance to help our children. But turning some of it into cash can be a great help for maintaining both homes and lifestyle. It has the parallel advantage of reducing demands on the state, which may unable to provide current levels of financial support in future.

 

How to use the nest egg

older owner dilemma
Source: Fordham Research 2008


Fordham Research has just completed a pioneering study of older persons in York, including equity release. York, although higher priced than average is quite typical of England in terms of its demography and tenure mix, so it represents a representative example. We took the household survey done for our Strategic Housing Market Assessment in York and focussed on older people. We looked at the various sources of ability to pay for housing, summarised in our term Financial Capacity: income, savings and equity.

The average older owner in York has between £100k and £200k of equity. We found a polarised situation with savings. Those with lower savings (below the Pensioner Credit threshold of £10k) had very little savings (£3k on average) while those over the threshold had around £100k of savings. The higher savings group also had much higher equity. There are very large sums stored in the equity of many older owners homes: enough to permit some cashing in without peril to next generation’s inheritance.

We also examined those older people planning to move. We found that slightly more than half of the movers planned to downsize. There was more reluctance among the lower savings group: more expected to downsize than wanted to do so. We also looked at ‘downtenuring’: moving from ownership to renting. Here there was a bigger distinction according to savings level. About a third of the lower savings group expected to move from ownership to renting (sometimes reluctantly). In the lower savings group more planned to move to social renting than to private renting. Only a small (10%) proportion of the higher savings group planned to downtenure, and mainly to live with relatives (granny flats etc).

The York analysis suggests that one should proceed with care in relation to equity release. There is lots of equity about, but when the desire to keep some in hand, and the demands of inheritance are considered, there is often a delicate balance to be made. A significant proportion of less wealthy owners expect to have to abandon ownership. But there is a substantial fraction who could engage in equity release.

To be effective equity release ‘products’ should pay attention to the character of the equity ownership in each council area. Equity release has, for a range of reasons, a chequered history: local authorities could help reassure people on this aspect. To achieve its potential, it needs to be closely linked to analysis of the particular equity pattern of each area. Through this route many households could achieve a higher quality of life in old age than they would otherwise achieve.

 

Fordham Research is stronger now

Dr Richard Fordham is pleased to announce the purchase of the Fordham Research’s business by RCF Associates Ltd. It was bought from Fordham Research Group Ltd in voluntary liquidation (FRGL). The key staff have joined Dr Fordham in the new company.

The new business will focus on 2 core areas of housing related research:

    • the assessment of housing need (through housing needs surveys and Strategic Housing Market Assessments)
    • the assessment of housing viability (through PPS3 – para 29 studies and single site viability studies)

Fordham Research also undertakes studies assessing the requirements of households marginalised from the mainstream housing market, drawing on the staff’s considerable experience:

    • Older persons housing studies
    • Gypsy and traveller consultations and accommodation assessments.
    • Private rented sector studies
    • Housing and support needs studies
    • Private Sector Stock Condition and Empty Homes surveys
    • Migrant worker studies
    • Rural housing studies

This work is underpinned by our Expert Witness work at planning inquiries. This relies upon the calibre of the work we do, and upon our two decades experience of such work.

Fordham Research has always been known for its innovative character, an this continues. Two recent innovations are:

    • Dynamic Viability : the model allows deliverable affordable housing targets to be set for the whole plan period. This is a unique capability, not available with any other form of viability analysis. more info
    • Balancing housing markets . This work, developed over several years has recently scored a success. In Oxford the City has just won an appeal in which the Inspector upheld the policy based on our work to reject an application which did not contain family housing. more info

We are also undertaking Local Economic Assessments, a new statutory responsibility, and are developing new technology to do them.

 

December 2008: Credit crunch newsletter Issue 2.1

This issue contains a summary of the November 2008 conference. It is also available as a pdf document (474Kb).

October 2008: Viability and the Credit Crunch conference

Our conference this year will be held on 19th November in London.

The Chair for the conference has now been confirmed:-

Dr Hartley Booth, a Barrister (Consultant with Denton Wilde Sapte), has wide experience and interest in housing matters. He was the Prime Minister’s advisor for four years on the environment including housing and planning matters and Chief Executive of British Urban Development. He was then founder Chairman of the British Urban Regeneration Association (BURA) and a Conservative MP in the 1990ies. He has proposed measures to assist housing problems which arose in the 1990's recession and has experience that can contribute to debate regarding the current housing market.

For the published details follow this link.

September 2008: Latest indications of market turbulence

The conclusion of the NHPAU (National Housing and Planning Advice Unit) Annual conference on the 2nd July 2008 was that the current decrease in property prices recorded nationally is a result of changes to interest rates and consumer confidence rather than a reduction in demand or an oversupply of housing (which has been responsible for the market downturn in Ireland and Spain).

The latest Land Registry data suggests that nationally there was little change in the price of houses over the last year to June 2008. Between 2nd quarter 2007 and 2nd quarter 2008, the average property price in England has increased by 1.6%, however the regions of the North West, East and West Midlands all recorded a slight fall in the average cost of properties sold. Whilst the change in average prices recorded has been relatively negligible throughout the country the decrease in market activity has been quite dramatic. Between 2nd quarter 2007 and 2nd quarter 2008 the number of property sales in England has decreased by 42.3%, whilst all English regions have shown a reduction in property sales of at least 39%.

Although nationally terraced houses recorded the lowest increase in price over the year, in five of the eight English regions the price of flats/maisonettes decreased between 2nd quarter 2007 and 2nd quarter 2008. This suggests that the caution with which authorities are pursuing new build flat accommodation on the open market is justified.

The role of first-time buyers was identified as being crucial for maintaining buoyancy in the market at the NHPAU annual conference. The average price of a property bought by a first-time buyer in England increased by 5.0% between 2nd quarter 2007 and 2nd quarter 2008, however the size of deposit used by a first-time buyer increased by 28.2%. This suggests that it the new mortgage lending criteria is beginning to have an impact on who is able to purchase their first home, which is likely to result in a reduction in first-time buyers across the country.

July 2008: Credit crunch newsletter for London

Please click here for our analysis (672Kb pdf).

July 2008: The role of shared ownership and 'intermediate rent'

Shared ownership (Newbuild HomeBuy in the Housing Corporation parlance) is normally built for an RSL and is part bought and part rented from the RSL, though some housebuilders have been doing a parallel offer of this kind (labelled 'shared equity'). The aim is to produce housing that does not cost as much as newbuild and so extend the market downwards.

It is commonly overlooked that this does not necessarily mean that shared ownership is 'affordable housing'. Affordable housing is clearly identified in PPS3 as being below market entry, which means private rental in most parts of the country. Shared ownership normally lies about halfway up the rent/buy gap, and is not affordable housing.

This can be seen clearly in the following examples of our housing gaps graph:

Burnley & Pendle and Woking housing gaps graphs (£/week)

Burnley & Pendle

Burnley & Pendle housing gaps graph

Woking

Woking housing gaps graph

Source: Fordham Research 2008

The graphs show the housing market in terms of weekly cost (turning mortgages into weekly equivalents, to compare with rents) and showing the full range of tenures. The orange curve is a generalised demand curve. But the point is to note that there is a big gap between newbuild and second-hand entry level costs, another big gap between market entry (private rent) and cheapest purchase, and finally a big intermediate gap (between a social rent and market entry).

Until the credit crunch, shared ownership was doing a fairly good job as 'low cost market' housing: ie providing a partial equity step up the ladder for those in the rent/buy gap. It was not affordable housing, and was therefore rather misleadingly presented, but it was of some use. However, with the credit crunch there is little chance of it surviving in any numbers: the increased cost of the mortgage element, the overall price, and the lack of asset growth prospects are lethal. Our market intelligence work suggests that Newbuild HomeBuy is dead.

One Housing Corporation product that could have a future is 'intermediate rent' (priced at 80% of 'reference rent'). The reference rent is determined for the purpose of Housing Benefit provision. This usually does count as affordable housing, as it lies in the intermediate gap. At present the Corporation only provides very limited funding for it, but it is hoped that this will change. The dearth of new shared ownership may prompt a rethink in the funding regime.

Note: the recent JRF report 'Housing market recessions and sustainable home ownership', which stresses the need for a more systematic mortgage structure, comes, by a quite different route (the inability of first time buyers to access mortgages) to the view that shared ownership will actually grow a lot. http://www.jrf.org.uk/knowledge/findings/housing/2254.asp

Further discussion of housing market gaps can be found on our website at www.fordhamresearch.com/keyt.html