Q&A: Affordable housing

What are affordable housing schemes?

"Affordable housing" is a phrase used to cover a multitude of various schemes that help people on modest incomes - who live in areas of high house prices - buy a home.

The schemes are usually run by a housing association or council.

The most common form is "shared ownership" where you are allocated a property on a part-buy, part-rent basis.

This means you buy a proportion of its value - usually anything up to 75% - and pay a subsidised rent on the remaining share.

Under this arrangement you are also given the chance to "staircase" up to full ownership by buying the proportion that you do not own, if your circumstances change, and you find you can afford it.

What is the starter home initiative and how does it work?

The Starter Homes Initiative (SHI) is the latest affordable housing scheme launched by the government.

It was announced in 2000 with a budget of £250m. The aim is that 9000 workers described as being "essential" to public services would have found homes through SHI by the time it closes in March 2004.

The Starter Homes Initiative is only available to first time buyers, and most schemes are run by a housing association on behalf of the government or for certain employers like police forces, education authorities and NHS trusts.

The deals on offer will vary from one area to another.

You may be offered an equity loan which is based on a percentage of the property price.

The sum available varies, but it can be anything up to £25,000.

There are no monthly repayments on this loan, but when you sell the property you repay the percentage you borrowed.

For example, if you want to buy a home for £100,000 and you can only raise a mortgage for £75,000, you may be offered the remaining £25,000 (or 25%) as an equity loan.

But when you come to sell you must repay 25% of the sale price.

So if the property has risen in value to £200,000 you would pay back £50,000 as that is 25% of the sale price.

However, if the value falls you would still only pay 25% of the sale price, in other words you would repay less than you borrowed.

You could also be offered something called a Do it Yourself Shared Ownership (DIYSO).

This is very similar to the traditional shared ownership scheme described above but, instead of being allocated a property, you go out onto the open market and find a home you would like to buy.

The housing association enters into a part-buy part-rent, arrangement with you.

(Note: this option, offered under SHI, should not be confused with the Do it Yourself Shared Ownership schemes which were formerly offered by Housing Associations.

These have now been withdrawn and replaced with the "Homebuy" scheme, which offers an equity loan of 25% of the property's value)

What happens when the Starter Homes Initiative ends?

The government has said it intends to replace SHI with a similar scheme called the "Challenge Fund".

The former Housing Minister Lord Rooker announced a £300m budget for the fund in September 2002.

The Challenge Fund aims to make 4000 new homes available to essential workers on a part-buy, part-rent basis, mostly in the south east.

A hundred leading housing associations had to bid for the cash to run the scheme, and most of the money has now been allocated.

Another option also available under the Challenge Fund is the "Intermediate Rent Scheme" where you pay a reduced rent on the home you live in, usually about 75% to 80% of the market rate.

But under this arrangement you don't buy any share of the property.

Am I eligible?

Your chances of getting some help depend on your occupation, your circumstances and where you live.

In some areas there may not be any shared ownership schemes at all, or they may have long waiting lists.

Different schemes use different criteria to decide who gets a place first. Some may give priority to families with children, and some schemes are only available to specific types of workers, such as nurses, teachers or police officers.

Where can I find out more?

The housing office at your local council should have details of affordable housing schemes in your area and contacts for any housing associations.

You can also get details from the Housing Corporation, which is the government funded agency charged with delivering social housing. BBC Radio 4's Inside Money was broadcast on Saturday, 9 August, and Monday, 11 August, 2003.