Page last updated at 08:53 GMT, Wednesday, 16 July 2008 09:53 UK

'Rent now buy later' housing plan

Building work
The government's target for new homes is under pressure

A "rent first, buy later" scheme is heading a series of measures which the government hopes will breathe new life into the housing market.

The pilot project, being announced by Housing Minister Caroline Flint, will be open to some in England with household earnings under £60,000.

They would rent the property at a discounted rate for two or three years, with an option to buy part of it.

First-time buyers have been among the hardest hit by the credit crunch.

Other plans being outlined include the location of new local housing companies which would see councils and developers using surplus land for homes.

Tough times

The squeeze on mortgages caused by the credit crunch has made it difficult for first-time buyers to secure a mortgage deal, even though house prices are falling.

Caroline Flint
The long-term need to provide more homes has not gone away
Housing Minister Caroline Flint

A first-time buyer couple on low incomes must save a year's worth of their take-home pay to buy their first home, the Royal Institution of Chartered Surveyors (Rics) said last week.

A couple in the bottom quarter of earners in the UK would need £27,738 to pay the upfront fees even before paying any of their mortgage, Rics said.

Under the government's plans, households earning £60,000 or less would be able to rent at 80% or less of the going rate for two or three years in order to save up for a deposit.

They would have an option to buy 25% or more of the property at any time under the scheme, called Rent to Home Buy.

The government had previously extended the shared ownership scheme from key workers to those households earning £60,000 or less.

Bids will have to be made for the rent first, buy later scheme through registered social landlords, but there were no specific numbers as to the number that would be granted.

Building plans

The government hopes that this scheme - only available in England - alongside others will help 75,000 first-time buyer households on to the property ladder.

James Rowlands, policy officer at Rics, said the scheme did not go far enough.

"This measure will only have a limited impact on the wider housing market unless it is rapidly expanded to include all first time buyers," he said.

Ms Flint was also announcing that Barking and Dagenham, Newcastle, Nottingham and Manchester will be the first areas to run local housing companies for housing developments on surplus council land.

The government has been warned by various groups that its target of three million new homes built by 2020 is under threat, with house builders cutting back on their operations in the current climate.

Sale and let signs
First-time buyers have been facing difficulties securing a mortgage

The Council of Mortgage Lenders is calling for construction projects to be tailored to the needs of different locations in the UK.

The glut of new city centre apartment blocks has led to criticism locally in some areas.

"The long-term need to provide more homes has not gone away. We have a growing and ageing population and will only see worsening affordability unless we increase the housing supply," said Ms Flint.

"That means being ambitious, but also practical and realistic, acknowledging not only the difficulties faced by individuals and families, but for those who work in the house building industry."

She said that funding, in addition to the £200m already announced, could be made available to buy unsold stock from house builders for affordable homes.

Using the Department of Communities and Local Government's own house price figures, £200m would buy 916 average priced homes.

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