Affordable Housing covers a number of different types of tenure including:
1. Social Rented
This is owned by local authorities and private registered providers, and guideline target rents are determined through the national rent regime. Tenants are charged typically between 40% and 60% of average rents in local areas.
2. Affordable Rented
This is let by local authorities or private registered providers to households that are eligible for social rented housing. Affordable rent is no more than 80% of the local market rent.
3. Intermediate Housing
Intermediate housing refers to homes for sale and rent at a cost above social rent but below market levels subject to the affordable housing definition. A number of types are set out below:
• Shared Ownership
Shares of between 25%-75% can be purchased in a property and a subsidised rent paid on the balance. Additional shares may be purchased over time and there is the ability to staircase to full ownership. If the resident sells the property, it is marketed for sale by the housing association and resold at the market value.
• Shared Equity/Partnership Mortgage
Unlike shared ownership, residents own their home from day one but only purchase part of it upfront. The remainder (typically 10-25%) is held as a second-charge loan, which must be repaid within a defined period of time, usually 10 to 25 years depending upon the provider. Interest is often charged on the part not purchased (equity loan) at around 3% per annum. Shared equity schemes are offered by a number of providers but mostly on new homes.
• Open Market Discount Scheme
This is used to ensure an element of new housing is sold to a specific customer at a below market rate e.g. key workers such as nurses or police officers. This is controlled via a S106 legal agreement, completed before planning permission is granted, and the price covenant will be that the property must be sold at a discount of its open market value in perpetuity.
Registered providers own and manage social housing. They tend to be non-commercial organisations such as local authorities or housing associations. Housing associations are independent, not-for-profit organisations that can use any profit they make to maintain existing homes and help finance new ones.
Local plans include an affordable housing target to be provided by the builder of new market housing schemes. Around half of new affordable homes are generated this way.
The Local authority and registered providers will work with the house builder to inform the mix and tenure required in a particular location, which is secured via a S106 legal agreement. The house builder must then build the houses and transfer them to the registered provider.