Through the housing maze

Confused about affordable housing? Think you do not qualify unless you have a very low income? Bewildered by all the various schemes on offer?

You are not alone. Richard Donnell of market analysts Hometrack says: “I think people understand there’s an option to rent from a private landlord, or to buy on the private market. But there’s a lack of awareness of the options in the middle.”

Miriam Morris of housing association Places for People agrees. “There’s a big confusion between shared ownership and equity loans,” she says.

One problem is that most of the schemes are called HomeBuy: NewBuild HomeBuy, MyChoice HomeBuy and HomeBuy Direct and so are easy to confuse.

The Housing Corporation, which funds affordable housing, explains: “The reason they are all called HomeBuy is to signify they’re government-backed, which means they’ve been thought through from the consumer’s point of view.”

But names that describe what schemes actually deliver would help. Morris feels there are now too many different schemes. “The Government needs a national product and a national brand.”

Donnell says: “It seems a shame there’s not a campaign for raising awareness of what the options are.”

So here is Homes & Property’s quick and easy-to-follow guide through the maze.

Who qualifies

All first-time buyers with joint incomes up to £60,000 are now eligible.

What is shared ownership?

You buy a share in a property — 25 per cent to 50 per cent — and pay rent on the part you do not own. As your financial situation improves, you can “staircase”, ie buy further shares up to 100 per cent.

Upside: no need to raise a big mortgage.

Downside: you do not own the property outright and face restrictions when you come to sell.

Products: NewBuild HomeBuy — property on new developments, usually from housing associations, although two private companies, Assettrust and Bellway Housing Trust, also offer NBH. Social HomeBuy offers a share in your present rented home.

What is an equity loan?

You pay part of the cost of your new home, usually 40 per cent to 50 per cent, and the Government lends you the rest.

Upside: Eventually, you own your home outright, you get an interest holiday of three to five years on the equity loan and there are no restrictions when you sell.

Downside: not suitable for those on low incomes.

Products: OwnHome and MyChoice HomeBuy, offered through housing associations, where you choose your home on the open market. First-Time Buyers Initiative and HomeBuy Direct are offered by developers on new-build properties.

What is rent-to-buy?

This is a new product. You rent a new-build home for an agreed period, then get the chance to buy the property. If you decide against buying, you can carry on renting.

Upside: no worries about negative equity and you get to “test-drive” the property.

Downside: not widely available yet and schemes vary greatly.

Products: under East Homes’ Rent Now Buy Later scheme you rent for three years at 80 per cent of the market rent, then get the chance to buy a share — 25 per cent or more. With Places for People’s Try Before You Buy, you rent for a year at market rent, then, if you decide to buy, the rent you have paid becomes your deposit.

People can get mortgages

“Yes,” says the Housing Corporation. “No problem,” says David Knight of financial analysts Moneyfacts, although he does add: “Things are changing very quickly and we’ve got things one day that aren’t there the next.” Richard Stone of brokers SPF Sherwins is also upbeat. He says he still has deals that offer 90 to 95 per cent finance and even a couple at 100 per cent. “It’s definitely not a problem but it’s more important than ever to go through an intermediary.”

* SPF Sherwins: 0800 652 2365; www.sherwins.co.uk.
* For information on affordable homes, contact Housing Options: 0845 230 8099; www.housingoptions.co.uk.

‘No one knew about shared ownership’

When Laura Pye decided to buy a 25 per cent share in a £325,000 two-bedroom flat in Earlsfield through Assettrust, she had problems convincing her friends and family.

“They didn’t have a clue what shared ownership was,” says Laura, 27, a retail manager. “They thought it was council housing. People were really surprised and my parents were very cautious. But once I explained, they were really happy for me to go ahead.”

‘Equity loan scheme was perfect for us’

Sinoj and Amitha Sadanandan felt they needed a house as they hope to start a family. The answer was OwnHome, the equity loan scheme run by Places for People, which lets first-time buyers purchase on the open market.

The couple got a Co-operative Bank mortgage for 75 per cent of a two-bedroom 1903 house in Hayes, west London, costing £213,000 and an equity loan, interest-free for five years, for the other 25 per cent.

“We found a home that is perfect for us,” says Sinoj, a 30-year-old chef. “If there was no loan from the Government it would have been very difficult.”