From 1st July the Council of Mortgage Lenders is integrated into a new trade association, UK Finance. For the time being, all UKF mortgage information will continue to be published on this website, and UKF member-only mortgage information will only be available here.

UK Finance represents around 300 firms in the UK providing credit, banking, markets and payment-related services. The new organisation takes on most of the activities previously carried out by the Asset Based Finance Association, the British Bankers’ Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association. Please go to for wider content and updates from UK Finance.

  1. Home
  2. News
  3. News & Views
  4. Affordable housing: issues for lenders

Affordable housing: issues for lenders


Published: 19 March 2015 | Author: Bernard Clarke

Affordable housing comprises 18% of the UK’s housing stock, and is substantially funded by CML members, both through direct investment and as providers of residential mortgages. Over and above mortgages advanced on affordable homes, commercial lending to the sector totals around £74.5 billion, most of which comes from CML members.

To reinforce the role of CML members as commercial funders of the sector, the key priority is to safeguard existing investment, and to ensure that the sector continues to attract the funds it needs to grow.

The supply of housing in the sector and affordability are top priorities for all the main political parties, so today we look at the key issues for the sector as we approach the general election.

The political perspective

Increasing the supply of affordable housing is a key aspiration of each of the main political parties, although there are differences in approaches between them. Generally, the Conservatives favour the promotion of owner-occupation through schemes such as the Right to Buy, shared ownership and the Help to Buy shared equity initiative. The Labour Party has tended to support the provision of more "traditional" social rented homes at subsidised rents. 

Regardless of the over-arching approach, the main priority for each of the parties is to build more with less public subsidy. So the sector will need to continue to attract private finance from CML members. That, in turn, means that government policy should not undermine the creditworthiness of the sector or expose it to risk in ways which might limit the appetite of lenders to invest.  

What is affordable housing?

Affordable homes are provided for households whose needs are not met by the open market. Eligibility is determined by a range of factors, including household incomes and property prices, and affordable housing is defined in the National Planning Policy Framework as follows:

  • Social rented housing, comprising homes owned by housing associations and local councils and let to eligible households.
  • Affordable or intermediate rented housing, which is let by housing associations and local councils at up to 80% of the market rent.
  • Intermediate housing, which may be sold or rented at a cost above social rent, but below market levels. This can include homes sold through shared ownership or shared equity schemes or as part of a package of government-supported affordable home ownership schemes, including Help to Buy. 

Affordable homes are financed through a mix of funds, including government grant. But public funding is also supported by private investment from commercial banks, the capital markets and institutional investors, all of which are represented in our membership. 

Social rented housing: the issues

Social housing is intended to support people to work without being dependent on housing benefit, and rents in the sector are based on a formula combining local wages and property values. In much of southern England, rents may be set at around 50% of local market rents – or even lower in areas where property is very expensive.

As in other tenures, the supply of new housing for social rent is lagging far behind demand. Council and housing association waiting lists continue to grow. The social rented sector comprises 3.9 million households, according to the English Housing Survey, but the sector has long been in decline. 

Research by the Chartered Institute of Housing shows that the stock of social rented homes fell by almost 44,000 in 2013-14, a rate of decline that accelerated from 19,000 the previous year. And the decline occurred even though more than 28,000 new social rented homes were built in those two years.

Despite heavily subsidised rents, and the intention that social housing should support people in work without housing benefit, a higher proportion of social renters receive benefit than in the private rented sector. According to the English Housing Survey, the average rent in the social sector in 2013-14 was £94 a week, compared to £176 in the private rented sector. Yet 63% of social tenants received housing benefit, compared to 26% of private renters.

Welfare reforms, including the introduction of universal credit, direct payments of benefit to tenants, and benefit caps present a series of challenges for the sector. There is a risk of disruption to landlords’ income streams, which could, in turn, affect the appetite of lenders and other to fund the sector.  

The CML’s position

Welfare reform should be implemented in a way that upholds the creditworthiness of the sector. More generally, there is a shortage of social rented housing, and policymakers need to look a the balance between the construction of new homes and the transfer of housing from the sector

Affordable rented housing:  the issues

In this tenure, housing associations and councils provide homes to tenants at an intermediate "affordable" rent of up to 80% of the market rate. Landlords are also now required to convert a proportion of existing social rent homes to the affordable rent option. 

According to the Chartered Institute of Housing, affordable rents are generally more than a third higher than social rent in north east England, and two-thirds higher in London. But with tenants in both parts of the country having similar financial resources, the effect of providing more homes at affordable, rather than social, rent is to increase demand for housing benefit in areas where rents are higher. 

Key issues in the sector include:

  • In some areas, “affordable” rent is not affordable for lower income households, and has to be funded through housing benefit, adding to its costs.
  • Social rented homes are lost through conversion of property to the affordable rent option.
  • The limited potential for landlords to charge higher (affordable) rent because of the risk of arrears.

The CML’s position 

Affordable rent can play a role in a balanced housing system. But some associations resist transferring homes fro social to affordable rent, where they believe this meets tenants’ needs and fits with the association’s business plan.

For lenders, it is crucial to strike the right balance. Affordable rent raises more revenue but over-provision represents a threat to the income of housing associations if tenants are unable to meet the cost. Concerns over the reliability of income for housing associations could affect the appetite of lenders to fund the sector.

Intermediate housing: the issues

Many larger housing associations sell homes to tenants through a variety of schemes, including shared ownership and the Right to Buy. Associations often rely on sales to cross-subsidise their social housing core business. But although sales provide a lump sum for housing associations, the flip side is that there is a loss of rental income and a reduction in the social housing stock. 

In the provision of intermediate housing, there is sometimes an overlap between the interests of our members as commercial funders and as residential mortgage lenders.   

As mortgage lenders, our members need confidence to support shared ownership, but there are concerns. Problems arise partly as a result of the complexity of the product, and partly because of the capital requirements for this type of lending. The government is aware of these issues, and is actively seeking to resolve them for the future. A successful outcome could encourage the expansion of shared ownership. 

One issue is the popularity of the Help to Buy equity loan scheme, which means that some lenders are now near their limits for exposure to lending on newly-built property and have little headroom to support shared ownership of new homes. As a result, there is some mis-alignment between government expectations and lender appetite. The problems may be resolved by greater support from lenders – but these are commercial issues for individual firms, which we are unable to influence. 

The CML’s position
* The government and policymakers need to focus on established models for shared ownership – those that are proven and acceptable to mortgage lenders.
* The government needs to recognise that shared ownership is a permanent tenure for many, and not a step to full home-ownership.
* Lenders will have to be consulted on new approaches, if they are to give their support.
* Any new approaches will also need to deliver scale and volume.
* Any proposed changes to Right to Buy must take into account the obligations of housing associations to their funders.


The social housing sector is a declining, but still very important, tenure, in which demand continues to outstrip supply. It is currently able to attract significant levels of private investment, and is well supported by CML members. But the next government must ensure that future policy is compatible with protecting existing investment and providing a favourable environment for future funding. 

Robust regulation will continue to be essential to maintaining funder confidence in the sector. We expect any future government to ensure that the sector is properly regulated, so as to protect existing and new affordable housing assets and support the significant volume of private investment in the sector.