Affordable Housing in the UK

Affordable housing is a term used to describe dwelling units whose total housing costs are deemed "affordable" to a group of people within a specified income range, Tailored home explains the term Affordable Home and what it means. 

Most people mistakenly believe that "affordable housing" refers to housing schemes available to those on benefits or those who need government aid. However, the term affordable housing is actually refers to any scheme run by housing associations, new home developers and the government that facilitates the sale of equity - or shares - in homes. This is achieved through a variety of financing options. So if you're one of the hundreds of thousands of people and a deposit is well beyond your means, read on to find out if there's an for affordable housing scheme for you.

Essentially, affordable housing is all about shared equity and shared ownership schemes. These schemes mean buyers with an income of less than £60,000 (this ceiling might soon be raised to £72,000) can do one of two things: firstly, apply for an equity loan up to 50% of the value of the property (shared equity), which effectively means the buyer has a mortgage on just 50% of the property's value. Crucially, too, it halves the deposit. The other option is to share ownership of the property with a housing association. This option is commonly known as part-buy/ part-rent and it means that buyers can purchase a share of the property worth between 25% and 75%. So the buyer only takes out a mortgage on the share of the house they buy - the remainder of the payment is simply a rent paid to the housing association. So buyers can buy more shares in the house as they can afford it.

Affordable housing schemes are exempt from stamp duty on a buyers first purchase and up to a  share purchase ceiling of 80%. There is a downside to this, however: should a buyer increase his or her share percentage from 50% all the way up to 100%, you would be charged stamp duty on the full value of the property at current rates.

The UK has a long tradition of promoting affordable social rented housing, usually through local councils or housing associations.  There are a range of affordable home ownership options, with shared ownership being one of the most common and the one we will focus on here.  This is where a tenant buys a part share of a property, usually through a housing association and then rents the remainder.  Usually there are options to step-up the owned part over time.  The government has also attempted to promote the supply of owner occupied affordable stock for purchase, principally by using the land-use planning system to require that housing developers provide a proportion of lower cost housing within new developments.
 
Housing associations are not-for-profit organisations with a history that goes back before the start of the 20th century. The number of homes under their ownership grew significantly from the 1980s as successive governments sought to make them the principal form of social housing, in preference to local authorities. Many of the homes previously under the ownership of local authorities have been transferred newly established housing associations, including some of the largest in the country. Despite being not-for-profit organisations, housing association rents are typically higher than for council housing. Renting a home through a housing association can in some circumstances prove costlier than purchasing a similar property through a mortgage.
 
All major housing associations are registered with the HCA which regulates them and provides grants for development. Housing associations that are registered with the Corporation are also known as Registered Social Landlords.
 
The Department for Communities and Local Government has responsibility for housing in England. In January 2007 it announced a planned merger between the Housing Corporation and regeneration body English Partnerships to create the Homes and Communities Agency (initially announced as "Communities England"). This new body is likely to have access to more than £4 billion in resources.
 
In contrast to the rest of the United Kingdom, social housing in Northern Ireland is regulated by the Northern Ireland Housing Executive, which was established to take on ownership of former council stock and prevent sectarian allocation of housing to people from one religion
 
The HomeBuy Scheme
HomeBuy enables social tenants, key workers and first time buyers to buy a share of a home and get a first step on the housing ladder.
 
There are three HomeBuy products based on equity sharing to offer people a choice in the type of home they can buy.
 
This section gives details for each of the products, provides answers to the most common questions about the scheme and lists contact details for the HomeBuy Agents who provide a contact point for affordable housing options in different areas of England.
 
On 1 April 2008, two new equity loans became available under the Government's shared equity Open Market HomeBuy scheme. The new loans - MyChoiceHomeBuy and Ownhome - will improve affordability for purchasers and provide more choice in the mortgage which purchasers can take out.
 
New Build HomeBuy
With this product purchasers can buy a minimum initial purchase of 25 per cent of a newly-built home. A housing provider can hold the remainder of the equity. The provider will be able to levy a charge of up to three per cent on their equity. A lower target average for the charge is set at 2.75 per cent. Purchasers may buy further shares in their home when they can afford to do so - a process known as "staircasing".
 
New Build schemes are generally part funded with grant from the Housing Corporation through its Affordable Housing Programme.
 
The Open Market and New Build HomeBuy schemes build on the previous shared ownership and Homebuy equity loan products. They merge current principles and best practice to create a more coherent, streamlined and affordable suite of options.
 
The scheme enables flexibility within the HomeBuy framework for providers to offer schemes that meet the needs of people with long term disabilities. This will include the option for people to purchase homes on the open market that are suitable for them, on a shared ownership basis.
 
Open Market HomeBuy
There are two Open Market HomeBuy products - MyChoiceHomeBuy and Ownhome offered by appointed equity loan providers.
 
MyChoiceHomeBuy Product
1. An equity loan of between 15 to 50 per cent of the purchase price is provided by a partnership of eight housing associations named CHASE, each one of which is an equity loan provider.
 
2. This product can be used in conjunction with a conventional mortgage from a range of qualified lender regulated by the Financial Services Authority.
 
3. Purchasers may be expected to raise finance to purchase between 50 and 85 per cent of a home on the open market.
 
4. There will be an annual fee of 1.75 per cent on the equity loan in year one, payable on a monthly basis.  The fee will increase annually by the Retail Price Index (RPI) plus one per cent.
 
5. Purchasers are free to re-mortgage at any time but will need the equity loan provider's consent if the loan is still in place.
 
Ownhome product
1. An equity loan of between 20 to 40 per cent is provided by Places for People, a Housing Association, in partnership with Co-operative Financial Services.
 
2. This product must be used in conjunction with a conventional mortgage from the Co-operative Bank in the first instance.
 
3. Purchasers may be expected to raise finance to purchase between 60 per cent and 80 per cent of a home on the open market.
 
4. There is no interest charged on the equity loan for the first five years but there will be a charge of 1.75 per cent from year six and 3.75 per cent from year eleven onwards.
 
5. Purchasers may re-mortgage with a lender other than the Co-operative Bank provided they comply with the terms of their initial mortgage agreement.
 
Both products
1. The equity loan can be used in conjunction with any deposit the purchaser may have.
 
2. Owners will need to inform the equity loan provider when they wish to sell and the provider will then arrange the valuation.
 
3. The loan must be repaid when the property is sold but can also be paid back earlier, as and when the owner can do so. Purchasers will also have to share any increase in the property's value with the equity loan provider.  The amount which is repaid will be based on the market value of the home at the date of repayment or sale.
 
4. Applicants should apply to HomeBuy Agents, who will advise if applicants are eligible and recommend an Independent Financial Advisor for advice on which product best suits their circumstances.  Applicants may also apply direct to the equity loan providers.  If they do so, they will be required to complete a HomeBuy application form.

Tailored Home is a specialist property finder, Let us help you find your new home why not give us a call today on 0845 071 7166 or email us at info@tailoredhome.co.uk

Other documents that may be helpful:

New Build Homebuy Direct | Ownhome Homebuy | MyChoiceHomebuy | First Time Buyers Initiative | 

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