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Affordable housing: can you buy below market value?

What is an affordable housing scheme, and how can it help you get on to the property ladder?

In this article
What does ‘affordable housing’ mean? How many affordable homes are available? Affordable housing in new-build developments
Types of affordable housing Pros and cons of affordable housing How else can I get on the property ladder?

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. 

The government defines affordable housing as ‘social rented, affordable rented and intermediate housing, provided to specified eligible households whose needs are not met by the market’.

But in a briefing paper released in August 2017, the House of Commons Library said there is ‘a great deal of ambiguity’ in the way the term ‘affordable’ is used in housing - there is no standard definition and approaches differ between local areas.

How many affordable homes are available?

The most recent official data shows that a total of 41,530 affordable homes were provided in 2016-17, with their tenure as follows:

  • 24,350 affordable rented homes
  • 11,810 affordable home ownership, shared ownership and intermediate rent homes
  • 5,380 social rented homes.

Affordable housing in new-build developments

Around 92% of affordable homes provided in 2016-17 were new-builds - and this trend is set to continue.

In early 2017, the government made a proposal to amend the National Planning Policy Framework, so that at least 10% of the homes on developments of 10 or more units would be classified as ‘affordable’.

As it stands,  local authorities can insist that developers include affordable housing on their sites as a condition of granting planning permission.

For example, London mayor Sadiq Khan plans to make developers in the capital set aside 35% of their new-build properties as ‘affordable’ housing.

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


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. Which? research from January 2017 showed that the majority of shared ownership properties within 25 miles of central London were unaffordable for first-time buyers.


Starter homes


The government’s Starter Homes Initiative was set to offer up to 200,000 homes for sale at discounted rates - but as of 2018, no new homes have been 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.

In July 2018, a government spokesperson told Which?: 'We have spent £250 million buying land to build affordable properties, and work is underway getting them ready for development.

'It’s important we get Starter Homes right and we aim to introduce regulations on them alongside our new planning policy before building gets underway.'


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.

With schemes such as Right to Buy, Help to Buy and the Starter Homes Initiative, the government is increasingly encouraging people towards home ownership.


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 rent properties tend to be more widely available in developing tenures such as build to rent.


Intermediate 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 the upcoming Starter Homes Initiative, will reduce the overall burden of buying a home by reducing 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?

If you do have some money set aside for a deposit, you could consider buying a home using a 95% mortgage, guarantor mortgage or the government’s Help to Buy scheme.

Help to Buy equity loans allow buyers to purchase a new-build home with a 5% deposit.

The government provides an equity loan of up to 20% (or 40% inside London), allowing buyers to take out a smaller mortgage.

Help to Buy has been very popular with homebuyers in recent years, but there are suggestions that it causes the price of new-build properties to become inflated.

Correct as of date of publication.