What can families really afford to pay on £30,000?

23 September 2015 | 23 September 2015

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The affordability of our homes is important to Sovereign, so it was a key focus when we wrote our corporate strategy last year. In light of the recent Budget announcements, we’ve revisited and extended the in-depth affordability analysis that helped us set our strategy.

Widely accepted guidelines suggest that a home is affordable if the payments for it are less than 35% of a household’s income. However, we wanted to get underneath this figure to better understand what it means for our diverse range of residents living across our operating area.

Therefore we created a sophisticated affordability tool that allows us to really understand the affordability of our social, Affordable, and market rent products based on the household circumstances and location of our residents.

Although we house lots of different people, we know that our typical household is a family of two adults and two children, living in one of our three-bedroom homes. Consequently we focused on affordability for this typical household.

We also concentrated on an annual income of £30,000 because this figure has been referenced a lot in recent conversations about housing, particularly regarding the government’s Pay to Stay policy.

Our affordability tool shows that if our typical household earns £30,000 and pays a social rent, they would still be eligible for Housing Benefit in 53% of the local authorities where we work. This figure rises to 96% for residents paying an Affordable Rent, and hits 100% for those paying market rent.

To further understand affordability, we also looked at West Berkshire, one of the areas where we have a large concentration of homes.

If our typical household living in this area had a household income of £30,000 and paid a social rent, they would be eligible for £48 of Housing Benefit a month. The figure increases to £281 a month for Affordable Rent, and £485 a month on a market rent.

In one of our most expensive areas – Windsor and Maidenhead – the reliance on Housing Benefit is much higher: £104 a month for social rent; £550 for Affordable Rent; and £828 for market rent.

All of which indicates that housing is not necessarily affordable at an income of £30,000 for many of our residents, without support from Housing Benefit.

infographic 1 - final


This contrasts with the less detailed analysis, based on the 35%-of-income ratio, which suggests that social rent is affordable in almost all of our local authority areas, and Affordable Rent is affordable in 39% of them.


Infographic with 35 ratio - final


Infographic with our tool - final


This confirms our view that rent-to-income ratios may not be telling the whole story when it comes to affordability.

Making our homes affordable makes sense for our residents – we don’t want to set people up to fail – but it also makes good business sense, as we don’t want to build up bad debts.

Our conclusion is that high-level affordability measures can be a useful can opener, but our analysis shows that we’ll only get affordability right if we take the trouble to understand both our residents and our local housing markets.

For more information about our affordability tool, please email me.