Understanding affordable housing
What help is available from the Government to people struggling to get on the property ladder? Kate O’Raghallaigh reports.
With the complete withdrawal of 125% mortgages from the market this week, mortgage deposits becoming increasingly expensive and more than half of all would-be-borrowers confident that they will never be able to get on the property ladder, according to credit reference agency CreditExpert, many people may find themselves wondering what other options are available to them.
Help could be at hand, however, in the form of one of the Government’s affordable housing schemes. Richard Stone, spokesperson for specialist brokerage Sherwins, says the schemes target certain groups of people. He explains: “The Government is basically looking at key public sector workers, social housing tenants and first-time buyers who are in significant housing need.”
Affordable options
The schemes currently available are; First-time Buyer Initiative, Social Home Buy, New Build Home Buy and Open Market Home Buy. The First-Time Buyer Initiative is directed at people who cannot afford to get on the property ladder unassisted. Borrowers on this scheme buy a minimum 50% share in a property, funding it with a mortgage. Around half of the properties – which are mainly new build – reserved under this scheme go to public sector key workers, with the rest given to qualifying first-time buyers.
The Social Home Buy scheme allows existing social housing tenants to purchase a discounted share in their property, with the opportunity to buy a higher share at a later date, if they are able. Stone says the scheme doesn’t provide as much assistance as the others. He explains: “The problem with the Social Home Buy scheme is that comparatively, the assistance is minimal. The maximum discount a person can get on a property is £16,000 and this works on a pro-rata basis. For example, if you can only afford to buy 25% of a property, your discount will only be a quarter of the maximum amount, that is, £4,000. It is also only available on selected properties.”
With Open Market Home Buy, borrowers can buy a maximum stake of 67.5% in a property from the open market, that is, a property of their choice, rather than an allocated new-build property. The remaining stake is split between the Government and the mortgage lender.
Mark Underhill, head of product development at Yorkshire Building Society, explains: “Open Market Home Buy is a shared equity scheme. Where the borrower takes the maximum loan for 67.5% of a property for example, the Government takes a 17.5% stake and the remaining 15% goes to the lender. The borrower doesn’t pay any interest on the Government’s stake for the duration of the mortgage and no interest on the lender’s stake for the first five years, after which they are charged 3%.”Lenders such as Yorkshire BS, Halifax and Nationwide, all participate in the Open Market Home Buy scheme and currently offer both fixed-rate and tracker mortgages.
The scheme has been less successful in recent years, however. Underhill continues: “When the scheme came out, the percentage equity taken by the borrower was higher, with the lender and the Government taking a 12.5% stake each, leaving the borrower with a 75% loan. As house prices were rising rapidly, there were a lot of high LTV deals allowing borrowers to avail of no deposit, so a lot of people wouldn’t have been approved for the scheme simply because they would have been able to borrow from the mainstream market. I suspect that if the same scheme were to be introduced now, when there is less of a variety of products available, it may be more successful.”
Jim Munson, marketing manager at Housing Options, says the prevalence of new build properties among both the schemes, in particular the New Build scheme (formerly known as Shared Ownership), is a bonus. He explains: “New-build properties bring with them a lot of benefits. People can move straight in and put their stamp on them, and there aren’t any inherited problems.” New Build Home Buy allows you to buy a share in a property while paying subsidised rent on the remaining portion. If your financial circumstances improve, you can ‘staircase’ your ownership, that is, increase your owned share and reduce your rented portion in stages, until you own the entire property.
What next?
Potential borrowers who are interested in applying for a particular scheme should go their local Home Buy agent. Munson says: “Visit the Housing Corporation website to find out where your local Home Buy agent is and, once you have been to them and filled out the application form, you will have a decision within one working week. If you are approved, you will then be directed to an IFA who will source suitable mortgages for you. You are then free to either go searching for a property (in the case of the Open Market Home Buy scheme), or await possible properties from housing association waiting lists, if you are awaiting a new-build property.”
A lot of people availing of affordable housing schemes are key workers and social housing tenants, but don’t be put off if you don’t fall into one of these categories. Munson adds: “People who are thinking of applying for an affordable housing scheme shouldn’t be deterred simply because they are not a key worker or a social housing tenant. These schemes offer people the chance to put roots down, and there really is something for everyone. So if you are sick to death of renting and think you might meet the criteria, it’s certainly worth considering.”
For more information on affordable housing schemes click here
