What if we told you that you could get your property for half price? Yes, you read that right.
As the cost of living continues to rise and first-time buyers find it more challenging than ever to get on the housing ladder, the term ‘affordable housing’ has become increasingly popular. But what does affordable housing mean exactly? Who is it for? And just how ‘affordable’ is it?
Let’s explore everything you might need to know about affordable housing and help you figure out if it’s the right option for you.
- What is affordable housing in the UK?
- Who is affordable housing for?
- First Homes Scheme offering affordable housing for first-time buyers
- Shared Ownership making homeownership attainable
- Rent to Buy helping renters get on the ladder
- Affordable homes for renters
What is affordable housing in the UK?
Affordable housing refers to the properties available to either buy or rent for people whose needs are not met by the homes available on the private housing market. A crucial step in the UK government’s aim to end the housing crisis and prevent homelessness, the affordable housing scheme is designed to help prospective buyers make their way onto the property ladder.
Affordable housing enables aspiring homeowners a fast-tracked path to owning a property with the help of government housing schemes, such as Shared Ownership and First Homes. It also ecompasses social and affordable renting, which are both backed by local councils and housing associations.
For further details regarding the government’s affordable housing scheme, refer to the National Planning Policy Framework (NPPF).
Is affordable housing the same as council housing?
While often used interchangeably and sharing many similarities, affordable housing and council housing are two different things. The key difference is that affordable housing involves privately owned properties, whereas council or social housing is owned by the local council. The idea is that if there’s more affordable homes available then the fewer people will need council housing and will avoid homelessness.
Who is affordable housing for?
Affordable housing is designed for anyone whose needs are not met by the private housing market due to affordability constraints. This includes a variety of people, including those on lower incomes, essential local workers, individuals with disabilities, or first-time buyers.
First Homes Scheme offering affordable housing for first-time buyers
Launched in June 2021, the First Homes Scheme is a homeownership initiative brought in by the UK government to help first-time buyers and key workers purchase properties at a discounted price. The scheme aims to make homeownership more affordable through enabling eligible buyers to purchase new build homes at a minimum of 30% below the market value. In some cases, the discount can be even higher, up to 50%. For example, if a property’s market value is £250,000 and you get a 30% discount, it will be £175,000.
Since the property cost is lower, buyers require a smaller deposit, therefore, will also have less to pay in monthly mortgage payments. The discount is funded by the government and the new home developer.
Homes under the scheme will have the discount permanently, meaning whoever purchases the property after you’ll benefit from the same reduced rate. The next buyer must also fit the necessary criteria, as outlined below. If the property value increases by the time you sell your home, you’ll be required to provide the same discount based on the new market value. For instance, if the property is now valued at £300,00, you’ll be required to give a £90,000 discount. This is done in order to maintain affordability over time.
The government has pledged to add 10,000 properties to the First Homes Scheme annually.
What are the requirements for the First Homes Scheme?
To be eligible for the First Homes Scheme, you must be a first-time buyer in England and meet the following criteria: Be 18 years of age or older
- Your mortgage value must be at least half the property price
- Have a combined household income of £80,000 or less, or £90,000 in London
- The new-build property price must be £250,000 or less, or £420,000 in London
- A connection to the area you’re buying in is a must, such as already living there or having family there
Some individuals will be given priority over affordable housing over others through the New Homes Scheme, including:
- Essential workers, such as NHS staff, police, firefighters, delivery drivers, and retail workers
- People who already live in the area they are buying in
- Armed forces, veterans, and their spouses (including if they are widowed, divorced, or separated)
- People with lower household incomes
How do you apply for the First Homes Scheme?
The First Homes Scheme is available on a select number of properties in the majority of new home developments. When putting in an application, the first step is to check whether or not the developer is offering First Homes. If they are, you must qualify through the above criteria and put forward an application with the developer directly.
A minimum of a 5% deposit is required for the First Homes Scheme, which means if the property value is £200,000 but a 30% discount is applied, bringing it to £175,000, a 5% deposit would be £8,750. Given that the average first-time buyer deposit in the UK is £53,414, this scheme offers a significant saving.
There are numerous lenders that offer a 95% mortgage on properties purchased within the First Homes Scheme, including big names like Halifax, Lloyds, and Nationwide Building Society.
Shared Ownership making homeownership attainable
The government’s Shared Ownership Scheme is also helping thousands of Brits get on the ladder through affordable housing. With Shared Ownership, buyers are only required to pay the deposit for the share of the property they are buying, which also means they only need a mortgage for this share.
Typically, buyers will purchase between 25% and 75% of the total property. In some cases, this can even be as low as 10%, requiring a significantly lower upfront investment. The buyer will then pay the mortgage on their share and a reduced rent on the share they do not own.
Over time, you can increase your ownership share by purchasing it from the housing association, developer, or local authority that currently owns it.
What are the requirements for the Shared Ownership Scheme?
Initially designed for public sector workers, such as nurses, police, and teachers, the Shared Ownership Scheme is now open to anyone as long as you’re:
- 18 years old or older
- A first-time buyer or an existing homeowner who is not financially able to buy on the open market
- Have combined household income of £80,000 or less, or £90,000 in London
- A UK national or have the right to remain permanently
- Able to demonstrate financial means of purchasing a share of the property, meeting the mortgage criteria, and affording the rent payments (as well as additional charges, such as ground rent and maintenance)
If you’re over the age of 55, you may also be eligible for the Older People’s Shared Ownership (OPSO) Scheme. The key difference with this scheme is that you can only purchase up to 75% and never own the property outright. If you own 75% of the property, you’ll no longer have to pay rent on the remaining share.
Rent to Buy helping renters get on the ladder
Renting and saving up for your first home is an uphill battle. The Rent to Buy Scheme is a government scheme aimed at assisting renters in saving up for their first home, offering you a brand-new home at a fraction of the price, around a 20% discount. This 20% saving can then be reallocated to go towards your deposit.
After five years, you’ll have the options to either buy the property in part or full through the Shared Ownership Scheme. Unfortunately, if you can’t afford it, you’ll have to move out.
Rent to Buy is known under various names across housing associations to watch out for ‘Try Before You Buy’, ‘Rent Save Buy’, and the like.
Is Rent to Own the same thing?
No. Unlike Rent to Buy, Rent to Own requires you to pay rent at full market value for five years. Between year-two and year-five, you’ll have the option to buy the property . With this, you’ll be given back 25% of the rent you’ve paid over the years and receive 50% of any increase in the property value.
Are you eligible for Rent to Buy?
Individual housing associations will have different criteria, however, the universal qualifying criteria includes:
- Being a first-time buyer who can’t afford to buy on the open market
- Having a combined household income of £60,000 or less
- Demonstrating good credit history
How do you apply for Rent to Buy?
Contact your local housing association to enquire about Rent to Buy. If you live in London, the equivalent is called the London Living Rent. Major housing associations taking part in Rent to Buy include:
- Peabody
- L&Q
- Network Homes
- Your Housing Group
Affordable homes for renters
If you’re looking for affordable housing as a renter, there are two options available to you:
- Social rent
- Affordable rent
What is Social Rent?
Social Rent, commonly referred to as ‘fair rent’, is a government-subsidised housing option for low-income individuals and families. The rent is set by a government formula, with capped increases, making it much lower than market rates, and is paid to participating providers or local authorities.
These homes are allocated through local housing registers, and applications are made through the local council. While not everyone qualifies for social housing, those seeking affordable options can consider providers offering ‘affordable rent’ as an alternative.
What is affordable rent?
Introduced by the UK government, affordable rent homes are let out at approximately 20% below market rate by registered providers. Some providers set their rent based on local earnings, which means rent can even be considerably lower!
How do you apply for affordable rent?
If you’re on a low income or require additional housing support, you can apply for affordable rented homes through your local authority’s housing register or through housing associations. Upon application you’ll be put on a waiting list until a suitable property is available for you.
Are you looking for affordable housing for you and your family? Browse our Shared Ownership properties to find the home of your dreams.
