1. What does ‘affordability’ mean?
The ‘A’ in LILAC
What does ‘affordability’ mean?

2. Summary What we wanted from our finance model What is affordability?
Key concepts; how the model works
Payment related to income
Distribution of shares
High earners policy
The Lilac Equity Fund
What happens when members leave?
Modelling for future viability
Dwell – our finance software
Questions??

3. What features of a finance model would be desirable for your group??

4. Factors we considered…
Affordability
Fairness
Attractiveness to prospective members
Security / sustainability of Lilac
Simplicity / replicability
Incentives/disincentives
(e.g. earning more or less, putting in AC or not, over/under occupancy)
Others?

5. Limitations Affordable within certain parameters Dependency on incomes
Complexity

6. Lilac as a solution to the UK housing crisis
Intermediate housing market:
(Rents above social housing but below market price)
Demand: 40% households in the UK
Supply: 0.5% of housing

7. Affordability
Can Lilac meet the housing needs of people on low incomes?
Can people with minimum savings live in Lilac?
Can our members comfortably meet their housing costs and have enough money to live?
Accessing shares: How easy is it to move into and out of Lilac?
We need to consider financial ‘wealth’ - which includes income and capital
How can we ensure it remains affordable in the future?

8. Scenarios Retired Working part-time First time buyers Families
Single parents
Adult dependents
We wanted to ensure Lilac is financially accessible to as wide a group as possible;

9. So how does the model work. Basic principals here…
So how does the model work? Basic principals here…. for full explanation see Ali and Chris

10. MHOS = Mutual Home Ownership Scheme
All homes and land are owned by the MHOS rather than individual members
MHOS is registered as a co-operative controlled by its members.
Only lilac residents can be members of the MHOS
Each member holds a lease giving the right to occupy a specified property owned by the MHOS

11. Equity shares
The cost of buying the land and building the homes owned by the MHOS and financed by the mortgage is divided into EQUITY SHARES.
The number of shares owned by each member depends on what they can afford and the build cost of their home.
Under the terms of their lease, each member makes a monthly payment to the MHOS which pays off the interest and capital, and includes a deduction for maintenance, insurance and service costs.

12. Allocating shares
The number of shares allocated to each member depends on what they can afford and the build cost of their home.
To ensure sustainability of the project the value of the equity shares owned by a household must not differ more then + or – 10% of the build cost.
Every member pays 35% net income each month
The more they earn the more equity shares they can afford to finance
We also consider capital as wealth; If members put in additional capital this may increase the number of overall shares they can afford to finance

13. Mortgage and loan on the house
Members pay 35% of their net income every month until they have paid for their allocated shares.
Net household income
35% of
Net income
Mortgage and loan on the house
Everyone pays a deposit of 10%
of their total payment
These need to match !

14. Overall the project must meet 100% costs
Households are allocated shares worth between % of the costs of their home, depending on what they can afford
35%
35% may be enough to cover
35% may be enough to cover
35% may be enough to cover
10% deposit
£12,000
110%
£128,000 Mortgage and loan
10% deposit
100%
£116,000 Mortgage and loan
90%
£104,000 Mortgage and loan
Overall the project must meet 100% costs

15. How do we define net income?
Gross income = all sources of income including rent on other properties and benefits
less the following deductions:
Tax
National Insurance
Pension contributions (up to a maximum of 10%)
Student loan repayments
We have considered other deductions…..
Childcare costs
Union membership fees
Training expenses

16. Average earnings
% change
Year (April)
Earnings
CPI
1998
4.5
1.8
1999
3.2
1.5
2000
3.9
0.6
2001
4.7
1.2
2002
4.0
1.4
2003
3.3
2004
1.1
2005
2.9
1.9
2006
3.5
2.0
2007
2.8
2008
3.0
2009
2.3
2010
2.1
3.7
2011
0.4
2012
1.6
2013
2.2
2.4
2013: Median gross annual earnings for full time employees = £27,000
This equates to a net income of £20,891

17. Initial Payment
Minimum Net Income (everyone pays 35% net income to the scheme)
1bed
2bed
3bed
4bed
£10,000
£9,203
£14,378
£12,000
£8,858
£14,033
£14,000
£8,513
£13,687
£16,000
£8,167
£13,342
£20,192
£18,000
£7,822
£12,997
£19,847
£23,934
£20,000
£7,477
£12,651
£19,501
£23,589
£25,000
£6,613
£11,788
£18,638
£22,726
£30,000
£5,750
£10,925
£17,775
£21,863
£35,000
£4,887
£10,062
£16,912
£20,999
£40,000
£4,023
£9,198
£16,048
£20,136
£45,000
£3,160
£8,335
£15,185
£19,273
£50,000
£2,297
£7,472
£14,322
£18,409
£55,000
£1,434
£6,608
£13,458
£17,546
£60,000
£570
£5,745
£12,595
£16,683
£65,000
£4,882
£11,732
£15,820
£70,000
£4,018
£10,869
£14,956
£75,000
£3,155
£10,005
£14,093
£80,000
£2,292
£9,142
£13,230
£85,000
£1,429
£8,279
£12,366
£90,000
£565
£7,415
£11,503
£95,000
£6,552
£10,640
£100,000
£5,689
£9,777

18. Snapshot of equity share allocations

19. High Earners Policy
This applies if a member’s net income is higher than needed to finance their maximum share allocation (ie 110%) OR a member’s income increases and lilac cannot allocate them more shares They are still expected to pay 35% net income each month Of the excess: 50% goes towards paying off their shares faster, and 50% goes into a shared fund (the LEF or Lilac Equity Fund)

20. What is the LEF for?
Temporarily meeting a shortfall in repayments if an members income dropped
Financing an unexpected project cost
e.g. roof needing fixing
Financing further building
e.g. common house extension
To acquire equity shares
To decrease loans from banks and other lenders
The idea behind the LEF was to put aside some money to help Lilac through any difficult financial periods and with the aspiration that with time Lilac will be able to acquire significant equity instead rather then having loans from the Bank or other lenders.
We felt that those on higher incomes or with lots of savings should contribute to the sustainability of the project.

21. Future viability
Essential that Lilac is able to finance share withdrawals as members leave
Modelling work by Steve Bendle – Community Finance Solutions
Modelled for a wide variety of scenarios
For all scenarios Lilac is able to refinance – ie we are viable!
Lilac could refinance relying solely on the LEF by year 25, assuming an average household turnover of 12y and similar AC invested
Joining members with less capital than exiting members
Incomes within the project falling
Joining members with different incomes
Interest rates rising
Members moving between properties as needs change
Average household turnover from 8y up to 29y
Turnover in owner occupied homes is on average years and in shared ownership which is similar to MHOS it is 15-20years

22. Strengths of this model
Lower income/deposits required compared with housing market
Remains permanently affordable
Not linked to conventional housing market but to average wages
Robust
Plenty of contingency built in (early project)

23. Strengths (cont.) All members have a say, for example
how we use shared funds
How we define net income
How we reallocate shares
finding solutions when members’ financial circumstances change
As Lilac gains equity we can widen access, eg
by lowering the minimum income threshold
Reducing the capital needed for initial deposit

24. Other cost savings of MHOS
Reduced transaction costs – homes are not bought or sold
Easier to finance environmentally sustainable housing – and associated reduced energy bills
Shared meals/bulk food buying
Shared storage space
Shared tools, garden, DIY, cleaning
Shared childcare
Car pooling
Shared services (insurance, maintenance)

25. Our finance software

26. Our finance software..
Designed and developed by Maldaba in conjunction with Lilac members
Enables us to manage Lilac’s internal finances;
Calculates members share allocation and monthly payments
Tracks individual members’ equity as well as households’
Produces members’ annual statements (debt, shares, exit value)
Secure online store for member’s finance information
Overview of project shares
Reporting of maintenance issues
Designed to be easily modified to suit other groups

27. Questions???