New research into Right to Buy shows 1.4 Right to Buy sales are needed to deliver a replacement home without further subsidy
New research published by Hometrack, the property analytics business, reveals the volume of local authority tenants in England who could benefit from the proposed Right to Buy (RTB) changes and the resulting potential for new delivery from the capital receipts generated.
The Hometrack analysis used localised data on property prices and incomes to assess what level of discount would be needed to make RTB affordable for local authority tenants. The analysis takes into account key affordability criteria, notably a 2.75 income mortgage multiple. The findings show that the national average discount required is 40% or £50,800 - significantly higher than the current average of 25%. In London the discount required to make RTB affordable is as high as 58% or £128,000. In the South East the figure is £75,000 (see figure 1).
The consultation announced by the Government today (22 December) is for a proposed cap to the discount of £50,000. The Hometrack analysis shows that 65% of local authority tenants could afford to buy their home with a £50,000 discount. However, only a small proportion of these are likely to be eligible for a mortgage as just 16% of tenants are in full-time employment.
The new approach to RTB seeks to use the capital generated from a sale to re-invest in the delivery of a new home – a so-called one-for-one replacement. The Hometrack analysis shows that on a national basis the average capital raised per sale would be £64,725, much lower than the cost of delivering a new property and lower than the current average receipt of £77,470. Figure 2 shows the average discount and capital released from each sale on a regional basis.
To deliver one new home would require on average 1.4 RTB sales. This ratio ranges from a 1.1:1 rate in the North West to 1.6:1 in London – see figure 3.
Commenting on the analysis Richard Donnell, Hometrack′s Director of Research says, “The potential for RTB to deliver new funding for re-investment in housing is clear. The £50,000 cap will impact on the likely take-up. In Southern England where house prices are among the highest in the country, larger discounts are needed to make RTB affordable to tenants and this will inevitably limit take-up of the scheme.
“There is a careful balance to be struck between the discount and likely take-up. The £50,000 cap means that take-up is more likely to be in the most affordable areas of the country with a lower level of receipt per sale than currently. With lower levels of capital receipt per sale, the ability to achieve a one-for-one replacement rate may be difficult. Extra subsidy in the form of development on low cost public land may have to play a vital role if this policy objective is to be met.”
DATA TABLES
Figure 1 – Average discount required to make RTB affordable for tenants and maximum proposed discount
Figure 2 – average discount and capital raised from RTB sales which are affordable with a £50,000 maximum discount
Source: Hometrack
Figure 3 – No of RTB sales needed to deliver one new home with no extra subsidy
Source: Hometrack
ENDS