Community Land Trust Fund

Delivering Affordable Sustainable Housing

Glossary of terms

Download Glossary as a Word file

Affordability

The price of housing (whether for rent or sale) in relation to local incomes.  The usual benchmark is 30-35% of lower quartile household incomes.

Affordable housing

Social rented and intermediate housing, provided to specified eligible households whose needs are not met by the market. This can either be publicly subsidised through the HCA’s Affordable Homes Programme (see http://cfg.homesandcommunities.co.uk/ourwork/affordable-homes-programme-2015-18) or its equivalent in London (see www.london.gov.uk/what-we-do/housing-and-land/increasing-housing-supply/affordable-homes-and-national-affordable-homes).  In addition to those sources of capital subsidy, a significant element of affordable housing has been produced over the last few years by use of planning obligations under section 106 of the Town and Country Planning Acts.  See Section 106 Agreements.

At the time of writing, government has issued a Consultation Document to broaden the definition of Affordable Housing, to include Starter Homes developed by private housebuilders and sold at 20% discount from market value to people under 40 years of age.

Those recent/proposed policy changes by the government mean that the majority of the unallocated HCA Affordable Homes Programme 2015-18 will be used to finance Starter Homes.  Opportunities to secure funding for Affordable Rented dwellings through these programmes are likely to be limited at least until 2018.

Affordable rent

Rented housing provided by RPs of social housing, that has the same characteristics as social rented housing except that it is outside the National Rent Regime, but is subject to other rent controls that require it to be offered to eligible households at a rent of up to 80% of local market rents.  See http://cfg.homesandcommunities.co.uk/ourwork/affordable-rent

Asset Cover

This is a test to determine an organisation’s ability to cover its debt obligations with its assets, after all its liabilities have been met.

Balance sheet

The Assets and Liabilities of an organisation.

Best consideration

Under section 123 of the Local Government Act 1975, local authorities are required to obtain best consideration when disposing of assets such as land and property.  This is usually thought of as the maximum amount of cash that can be realised by selling land or property.  See www.legislation.gov.uk/ukpga/1972/70/section/123.

The consideration can also be the achievement of policy objectives, e.g. the development of affordable housing available to local people, to which the local authority has nomination rights.

Guidance is provided to valuers in the RICS “Valuation Standards”.  The publication “Valuation of land for affordable housing” (1st edition 2010) is very useful.

Bonds

Fixed interest financial instruments issued by governments, companies, banks, public utilities and other large entities. Bonds pay the bearer a fixed amount at a specified end date. Interest can either be paid over a specified interval (month, year etc.) or paid at the end date.  See also Community Bonds

Build Costs

The costs of construction of a development – usually the amount paid to the building contractor; this should not be confused with the total development cost (also called total scheme cost), which also includes the cost of purchasing the land, and any on-costs of development.

Building Fund

A financial provision that is built up over a number of years to meet the costs of replacing components when they become obsolete e.g. boilers, windows, roofs.

Cash flow

This can be for the development period or for the full appraisal term.  For the development period, it comprises any income (from grants, deposits from purchasers and sales receipts), less the costs of site acquisition, build costs and on-costs.  For the full appraisal term, it comprises the income (from rents and service charges) & expenditure (on maintenance and management) through the life of a development.  This cash flow may be discounted for appraisal purposes.

Community Bonds

Interest-bearing bonds intended for small scale community projects. They are usually issued by non-profit organisations such as Community Land Trusts.  See also Bonds.

Cross subsidy

Profits from one part of a scheme (eg housing for market value sale) used to meet deficits on another part (eg social or affordable rented)

Development costs

The full costs of development, including site acquisition, build costs (see above) and on-costs (see below).

Design & Build

A procurement method whereby the building contractor is responsible not only for building the development, but also some or all of its design.

Discount rate

The annual rate at which costs and income are discounted to bring future costs and income to a present value.  This is also used as a risk management tool:  the higher the risk, the higher the discount rate and thus the lower the present value.

Discounted cash flow

The income (from rents and service charges) & expenditure (on maintenance and management) through the life of a development, discounted by application of the discount rate.

FirstBuy

A government-backed equity loan scheme to assist first time buyers; now superseded by Help to Buy.

Help to Buy

A government-backed equity loan scheme available to first time buyers and home movers on homes of up to £600k purchase price.  The purchaser has to provide a 5% deposit; the government and house builder provide a 20% equity loan, which must be repaid when the house is sold; the purchaser obtains a mortgage of 75% of the purchase price.  This mechanism aims primarily to overcome lenders’ unwillingness to lend more than 75-80% of the security value of a new home.  See www.gov.uk/affordable-home-ownership-schemes/help-to-buy-equity-loans

HomeBuy

See Shared Ownership

Income & Expenditure account

The annual accounting for all income, expenditure and depreciation of the assets of an organisation.

Intermediate affordable housing

Housing at prices and rents above those of social rent, but below market price or rents.  These can include shared equity products (e.g. Shared Ownership, HomeBuy, FirstBuy or NewBuy), or other low cost homes for sale and intermediate rent.

Interest Cover

This measures if an organisation can meet its interest obligations out of nett income.

Intermediate rent

Housing let at rents between social rent levels, and full market levels – can be confused with Affordable Rent, but that has a more precise statutory definition.  Typically intermediate rent levels are around 70-90% of full market levels.

Loan to Value percentage or ratio

The proportion of the Security Value (see below) that is represented by the amount of the loan.

Maintenance costs

Expenditure on the property during its life, to keep it in good condition.  This may be either reactive (e.g. repairing a broken window – also known as repairs), or cyclical (e.g. re-painting).

Major Repairs Provision/Fund (MRP)

See Building Fund

Management costs

Direct expenditure on staff costs associated with letting, rent collection, etc., plus overheads such as property insurance.

Market rent

Rented housing let at the maximum rent level that can be achieved in the local market.  Like market sale values, these can fluctuate (up or down) over quite short time periods, as the local supply/demand balance changes.

National Planning Policy Framework (NPPF)

This document has reduced the amount of policy control by central Government over local planning authorities, from several thousand pages in the Planning Policy Statements such as PPS3.  The relevant parts of the PPSs were summarised in the NPPF.  As far as housing is concerned, the key content of PPS3 has been replicated in the NPPF.  See Annex 2, page 50 of: www.gov.uk/government/uploads/system/uploads/attachment_data/file/6077/2116950.pdf

However, at the time of writing, the government is proposing a change to the definition, to include Starter Homes and to relax the requirement that subsidy generated by a planning obligation does not have to be recycled in perpetuity into the provision of replacement affordable housing, should the original affordable housing be sold.   That could adversely effect the supply of land for development for affordable housing by CLTs.

National Planning Practice Guidance (NPPG)

This on-line resource supplements NPPF.  See http://planningguidance.planningportal.gov.uk/

National Rent Regime

The National Rent Regime is based on a formula that generates “target rents”, with reference to local house prices and local earnings.  The objective is for those target rents to be affordable for people in low paid employment or dependent entirely on state benefits.  Target rents can increase at no more than CPI +1% per annum thereafter.

Whilst this was meant originally to harmonise rents between local authorities and housing associations, that process was discontinued in 2014.

In addition, the Welfare Reform and Work Bill requires such rents charged by Registered Providers to reduce by 1% per annum during years 2016/17 to 2019/20.

Nett Present Value (NPV)

The result of a discounted cash flow, bringing together the present values of income and expenditure through an appraisal period.

NewBuy

A government-backed equity loan scheme to assist first time buyers; now superseded by Help to Buy.

Nomination Rights

The ability of a local authority to nominate a household to be granted the tenancy of an available affordable rented dwelling.

On-costs

Expenditure in addition to land acquisition and build costs, including professional fees, statutory fees & charges, finance charges during the development period, sales costs, etc.

Off the Shelf

A development method where newly-completed houses are purchased from a developer.

PPS3: Planning Policy Statement 3 (Housing)

This document underpinned the delivery of the Government’s strategic housing policy objectives and aimed to “ensure that everyone has the opportunity to live in a decent home, which they can afford in a community where they want to live”.  This document was superseded by the NPPF in March 2012, but is still a useful reference.

Private Registered Provider (PRP)

Any non-local authority organisation that provides affordable housing is registered as a PRP.

Public Registered Provider

A local authority that provides affordable housing.  The differentiation between public and private relates to the fact that borrowing by local authorities counts as public sector borrowing and is controlled by government, whereas that by Private Registered Providers does not.

Procurement method

The contractual arrangements used to develop the scheme.

Profit & Loss account

See Income & Expenditure account

Registered Provider (RP)

A provider of social rented housing registered with the Homes and Communities Agency, the regulator.  See Private Registered Provider and Public Registered Provider.

Registered Social Landlord (RSL)

The term Registered Provider superseded this in 2010.

Repair

See Maintenance

Section 106 Agreement

An agreement under Section 106 of the Town and Country Planning Act 1990.  Such agreements represent a charge on the land for which planning permission is granted, which imposes obligations on both the current and any future owners of that land.  This has the impact of reducing the value of the land in question.

This provision has been used to great effect over the last few years, to subsidise the provision of affordable housing as part of mixed tenure and mixed affordability housing developments.  The recent/proposed changes to the definition of Affordable Housing will limit the potential to achieve this objective in future.  See NPPF.

Security value or valuation

The value that a lender considers the property to be worth in the event that the borrower defaults on their loan repayments.  It is usually somewhat below market value, to reflect the costs of repossession and sale.

Shared equity

A form of discounted sale where the purchaser buys at a percentage of the open market value.  They then hold the property either for a limited period (typically 5-10 years) after which they have to pay the balance; or until they sell the house.  The discount is secured by a second charge (i.e. ranking after the mortgage lender’s security).  FirstBuy is a form of shared equity.

Shared ownership

The government brand for affordable home ownership schemes outside of London and covers a suite of low cost home ownership products designed to help social tenants and others in priority need to purchase a suitable home.  See www.gov.uk/affordable-home-ownership-schemes/shared-ownership-schemes.  In London, a similar suite of schemes is known as First Step.  See www.sharetobuy.com/firststeps.

They offer a form of tenure whereby the purchaser buys a proportion of the equity of the property (usually 25-75%) and rents the balance at a subsidised rent (typically 2.75% pa of the un-bought equity).

Social rent

Housing for which guideline target rents are determined through the National Rent Regime.  This has been superseded by Affordable Rent for new, publicly-funded provision.

Starter homes

Starter homes have a precise definition in planning law.  See: http://planningguidance.communities.gov.uk/blog/guidance/starter-homes/starter-homes-guidance/

They are to be sold at a discount of 20% from market value, up to a maximum price (including discount) of £450k in London and £250k elsewhere in the country.  They can be sold to purchasers less than 40 years old who have not previously been owner occupiers, and must be occupied by the purchasers (i.e. they must not be second homes or buy to let).

The expectation is that Starter Homes will be developed on Exceptions Sites, which are described as land which is currently underused, underused or unviable for occupation by or designated for commercial or industrial uses.  It is currently proposed that this will also apply to Rural Exceptions Sites that have been a valuable source of sites for affordable housing – i.e. land which otherwise would not have obtained planning permission for residential use, but is allowed because it is to provide affordable housing for local people.  As such, this could significantly reduce the supply of sites for affordable rented housing in rural areas.

Target rents

Target rents were introduced as part of the National Rent Regime introduced in 2002, with the aim of convergence of housing association and local authority rents.  They were generated by a formula 30% based on the relationship of the property’s value to a national average, 70% based on the relationship of local earnings to a national average, and a bedroom factor.  All new build dwellings had to be let at ±5% of target rent, subject to certain rent caps, after which they increased at RPI+1% per annum.  All existing dwellings had to converge over a period of 10 years ending 2012.

Traditional procurement

The procurement method where an architect or surveyor designs all aspects of a development, and a building contractor builds it to those detailed designs.

Turnkey

See Off the Shelf

Void or voids provision

When a rented property is empty and thus generating nor rental income.

With Contractor’s Design

See Design & Build

Works costs

See Build Costs