Confused.com’s Guide to Affordable Housing

• Guides
• Published: 16 Mar 2009 in Money and Mortgages

Don’t put off owning a property when there are ways and means of buying your own home

If you thought it was impossible to get a foot on the property ladder, think again.

Affordable housing was introduced by the Government to help first-time buyers, key workers and council and housing association tenants buy a home through subsidised rates.

The schemes run in conjunction with housing associations and developers, who allow purchasers to buy a proportion of a property at a lower cost.

New proposals by the Government mean a third of homes on every new housing estate, managed by housing associations, will soon be social rented homes at very low rates. The rest will be ‘intermediate rents’ – about 80% of the market value.

The subsidised rates will be available to those earning less than £60,000, in particular key workers, council or housing association tenants and first-time buyers.

Housing schemes 

There are various options open to people looking for a low-cost home. The following schemes apply to new homes on certain developments only.

New Build HomeBuy 

New Build HomeBuy is a Shared Ownership scheme run by HomeBuy agents (appointed housing associations). Applicants usually purchase 50% shares in their new home, although shares between 25% and 75% may also be available.

A subsidised rent is then paid on the remaining share to the housing provider – set at 3% of their share of the property in the first year. More shares can be bought later, known as ‘staircasing’, as and when you can afford them, although they’re sold at the current market price.

When it’s time to sell, owners can either sell the part they own, or if they can afford to, buy the remaining share and sell the home outright. They can sell at any time, provided the housing association is informed in writing beforehand, and could benefit from any increase in the value of the property, or be affected by any fall.

If the home’s not under their full ownership, the housing association may nominate prospective buyers or restrict the sale price so the property remains affordable to those interested in shared ownership.

Open Market HomeBuy (shared equity) 

This equity loan scheme is a Government initiative, funded by a panel of lenders. It’s designed to help households earning £20,000-£60,000 a year get a loan alongside a mortgage to buy their homes on the open market.

Those eligible could get a loan of up to 50%, on which interest is charged. The key benefit of Open Market HomeBuy is you are the sole owner of the property, as opposed to shared ownership.

Two loans are available through this plan – MyChoice HomeBuy, where the buyer covers at least 50% of the property price and pays a monthly interest charge, and OwnHome, which offers a five-year interest-free equity loan of between 20 and 40% of the property.

With MyChoice HomeBuy, applicants can apply for a mortgage with any lender they choose, whereas OwnHome is initially provided by The Co-Operative Bank. The equity loan provider will be entitled to a share of any increase in the value of the property when it is sold.

What’s more, a grant of £1,500 is available to help with moving and purchasing costs.

Social HomeBuy 

Social HomeBuy offers eligible council and housing association tenants the chance to own their current home by buying a share of the market value of the property at a discounted rate.

A minimum 25% can be purchased, and a rental charge of no more than 3% of the market value of the remaining equity is paid to the landlord.

The discount received is in proportion to the share of property purchased. However, it’s only available on the first share bought, so buying as big a share as possible allows buyers to take advantage of a larger discount. There’s no limit, so tenants can even buy 100% of the property with the full discount.

Not all landlords offer this scheme, and only selected properties and tenants are eligible. It’s also only available for tenants of at least two years, or five years for those who joined after January 18, 2005.

Is there a catch? 

Affordable housing is out of reach for any households earning over £60,000. There’s also a requirement of around £3,500 in savings to cover costs and fees, plus around 10% deposit on the share on which you’re taking out a mortgage.

Speak to your local council to find out your eligibility and what they have to offer. For more information about low-cost housing schemes, check out the Government’s website (www.direct.gov.uk).

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