What is affordable housing?
In one sense all affordable housing is relative – what is affordable for one person will not be for another.
Any individual’s home is affordable if they are able to pay the rent or the mortgage without having to cut back on necessities or finding themselves in debt.
But rather than focusing on the person and what they can or cannot afford, if you consider the type of housing then it becomes easier to define what affordable housing is.
In the UK there is a Government standard definition which classes affordable housing, both for sale and rent, as any property provided at least 20 per cent below market value.
This definition covers an array of housing types and schemes designed to help individuals buy or rent a home where they otherwise wouldn’t be able to afford to.
Essentially, any household whose level of income means the regular market for rented or resale homes in their area does not serve them, is in need of some form of affordable housing.
OnTheMarket has this guide to affordable housing in its various forms.
Commonly known as council housing, homes for social rent are reserved for the most vulnerable or those least able to afford to pay for their housing.
Target rates are set by the Government’s rent regime and the majority of landlords are either local authorities or registered housing associations.
Social rented homes are usually provided at 50-60 per cent lower rates than the average in a particular area and only those applicants who meet eligibility criteria qualify for a property.
Affordable rented homes must meet the benchmark of costing at least 20 per cent below local market rents, including service charges if there are any.
The landlord must be a registered provider unless the property is part of a Build to Rent scheme.
An affordable rented home must be kept at an affordable price for any households in future which qualify, or that subsidy recycled for alternative social housing provision.
Social rented homes are classed as affordable rent but not all affordable rent properties are social rented.
Properties whose rates are higher than social rent but still less than 80 per cent of the local market rate, are classified as intermediate housing.
These include some Build to Rent homes and properties for other middle-income households who can’t afford a deposit for a home where they live.
The London Living Rent scheme is an example of a programme for such households.
From 2021, the average home which is part of the scheme will be offered at two thirds the median market rent in a particular area.
The money households save on rent will enable them to put funds aside for a deposit on a property to buy.
Shared ownership is the most affordable way of buying a property, though in reality it is a hybrid of renting and purchasing a home.
With shared ownership, you can purchase a share of a home between 25 and 75 per cent of its value if you can’t afford a mortgage on the entire property.
Rent is paid on the remaining share, your slice of which can be increased in 10 per cent increments when you can afford it. This model is offered by housing associations and other affordable providers.
From next year, buyers will be able to purchase a share of the property as low as 10 per cent thanks to changes announced by Housing Secretary Robert Jenrick.
Up until now, buyers have been required to put down a five per cent deposit on their share of the property, usually making up the rest with a mortgage, then paying rent on the remaining share of the home.
In 2021 the minimum deposit will be reduced to one per cent, falling from its current level of £3,875 to £1,550.
The next rung on the ladder for those with savings looking to purchase a home, is the First Homes scheme.
First-time buyers receive a 30 per cent discount on the market value of a new build property that must be passed on when they sell.
Announcing the scheme in February, the Government stated that with the average price of a newly-built home in England at £314,000, a 30 per cent discount off this price is a £94,000 saving.
This takes more than £18,000 off a 20 per cent deposit.
Help to Buy
Finally, at the top end of the affordable housing options is Help to Buy.
For aspirant home-owners for whom buying a property in their area without assistance is just out of reach, the Help to Buy Equity Loan scheme is an option.
The Government lends buyers up to 20 per cent of the cost of a home, or 40 per cent in London.
The property must be a new build and with a deposit of five per cent or more put down and a mortgage to make up the rest to a minimum of 25 per cent.
You won’t be liable for interest on the 20 per cent loan for the first five years of home ownership.
A new version of the scheme is being introduced on 1 April 2021 and will run until 31 March 2023. Unlike the current scheme, it will be restricted to first-time buyers only.
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