If you’re hoping to buy your first home, you might have come across the term ‘affordable housing’. In theory, ‘affordable housing’ refers to properties that are offered for sale or rent for below their market value - usually as part of a scheme backed by the government or local council.
These initiatives are usually aimed at specific groups of people, such as local residents or those who earn below the national average wage.
But with so many different schemes and eligibility rules, there is some confusion over how the schemes work and who can qualify.
Here, we’ll try to demystify the concept of affordable housing and explain how you can get on the property ladder.
What does ‘affordable housing’ mean?
Broadly speaking, affordable housing schemes aim to make cheaper homes available for people who can’t afford to buy or rent at market rates, but the lack of a standard definition of 'affordable' has led to a range of different approaches.
The government says affordable housing should be ‘social rented, affordable rented and intermediate housing, provided to specified eligible households whose needs are not met by the market’.
How many affordable homes are available?
The most recent official data shows that a total of 57,644 affordable homes were provided in 2019-20, with their tenure as follows:
- 24,551 affordable rented homes
- 23,122 shared ownership homes
- 6,359 London affordable rent homes
- 5,716 social rented homes
Affordable housing in new-build developments
Around 92% of affordable homes provided in 2019-20 were new-builds, and this trend is likely to continue.
In 2021, the government launched its First Homes scheme, offering discounts on new-build properties to first-time buyers in England.
This is part of its Affordable Homes Programme, which will run until 2026. The programme aims to deliver up to 180,000 affordable homes, with two-thirds of funding to be spent on homes outside London.
Types of affordable housing
Affordable housing schemes come in all shapes and sizes, but here is a basic guide to some of the larger offerings.
Shared ownership schemes offer a helping hand to first-time buyers who can’t afford to buy a property outright.
To find out more about this scheme, our shared ownership guide explains who is eligible and how it works.
Shared ownership properties are usually sold by a housing association. You generally buy between 25% and 75% of a home and pay rent on the remainder. Over time, you can buy more equity in your property - a process known as staircasing.
Once you’ve factored in your mortgage repayments, rent and service charges, shared ownership might not be as affordable as it might seem.
The First Homes scheme offers first-time buyers a discount when they purchase a new-build home in England.
First Homes must be sold at a discount of at least 30% against their market value.
After the discount, the maximum amount First Homes can be sold for is £250,000, or £420,000 in Greater London. Local authorities can impose lower price caps if they wish.
Not all new properties are available under the scheme, but the government says First Homes must account for at least 25% of affordable housing sold by developers.
Starter Homes (scrapped)
The government’s Starter Homes Initiative was announced back in 2014.
It was set to offer up to 200,000 homes for sale at discounted rates - but was scrapped in 2020 without a home being built.
The initiative was pledged to first-time buyers in England aged under 40. The scheme would see new homes being built on brownfield sites - meaning land that had been previously developed - and sold at a 20% discount on market rates.
Rent to buy
Rent to Buy helps buyers who can’t raise a deposit make progress towards owning a home over time.
Under the scheme, housing associations offer properties for reduced rent (usually around 20% less than market value), allowing buyers to save for a deposit or purchase shares in their home using shared ownership.
Rent to Buy is open to non-homeowners with an annual household income below £80,000 who can’t buy a suitable home without assistance, and don’t have any outstanding credit issues.
Social rented housing
According to the Housing and Regeneration Act of 2008, social housing is accommodation let out at rents below market level to ‘people whose needs are not adequately served by the commercial housing market’.
Social housing is usually owned by local authorities. While rents vary, properties can’t be let for more than 80% of the local market rent.
In previous decades, the majority of new affordable homes have been provided by local authorities, but this is changing.
Affordable private rented housing
Affordable private rented housing must also be at least 20% cheaper than local market rents. But rather than being provided by local authorities, it’s available on the private market.
Affordable private rented properties tend to be more widely available in developing tenures such as build to rent.
Intermediate rent - or affordable rent - was introduced as a new tenure in 2010.
Intermediate rent allows housing associations to let properties out at 80% of local market rent levels - but to working people with household incomes of less than £66,000 (or £80,000 for larger homes).
The aim of the scheme is to allow associations to raise additional finance on the private market that could then be invested into increasing new housing stock.
Pros and cons of affordable housing
If you can access an affordable housing scheme, it could help you get on to the property ladder or access more affordable rents.
Home ownership schemes such as First Homes reduce the burden of buying a home by lowering the overall cost, while the likes of shared ownership provide opportunities for buyers with smaller deposits.
On the other hand, the confusion around what is and isn’t ‘affordable’ has provoked criticism, with some campaigners claiming the definitions are not always effective in helping low-income or first-time buyers.
Critics suggest using a housing cost-to-income ratio would be a more effective way of ensuring affordable housing is truly affordable from area to area. As a rough guide, the housing charity Shelter proposes that ‘affordable’ should classify as no more than 35% of your net household income.
How else can I get on the property ladder?
The government provides an equity loan of up to 20% (or 40% inside London), allowing buyers to take out a smaller mortgage.