CompareTheMarket: The complete guide to affordable housing in the UK

CompareTheMarket have written an article that covers all aspects, as a complete guide, of affordable housing as it currently stands in the UK.

As anyone who’s tried to get on the property ladder can tell you, housing in the UK isn’t cheap. Whether you’re looking to buy your first ever home, or even just find an affordable place to rent while you save for a mortgage in the future, things can be tough.

Finding a house which matches your budget is a challenge, but it’s far from an unattainable goal. Let’s walk through some of the best ways to save for, find and purchase the perfect home for a price which works around your means.

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What is affordable housing?

Affordable housing, by its very definition, is the term given to housing units which are affordable to people who live below the median household income.

For a house to qualify as affordable, it must:

Be a starter home, which restricts someone from purchasing it if their household income is above a certain threshold
Be sold at a discount of at least 20% below the local market value
Have infrastructure in place which provides a route for ownership in the future

Offer rent 20% below market value, with legislation in place to ensure this remains the case

Owing to the fact that this kind of housing is targeted at specified eligible households whose needs are not met by the market, a lot of responsibility falls on the government to ensure there are programs in place to support purchases.

With some people unable to afford the market rate, both new-build and private sector properties can be converted into housing which is specifically targeted at people living below the median range.

Affordable housing statistics

But just how does that translate as a percentage of the UK housing market? Let’s take a closer look at how affordable housing compares to properties which fall under the traditional market value.

Across the course of 2020-21 there have been a total of 37,330 total starts on house construction. When it came to the breakdown between those in the affordable range and those at typical market value, there was a huge swing in favour of the less pricey option.

Government figures showed:

28,191 affordable housing starts
9,139 market value starts

Interestingly nearly a quarter of affordable starts came in the North West of the country. Figures showed that 24% of construction on affordable housing was started there – a rise of 7% from the same report the year prior.

The total spread by region showed:

North West – 24%
South East – 18%
East of England – 13%
West Midlands – 11%
South West – 10%
East Midlands – 10%
Yorkshire and the Humber – 9%
North East – 6%
London – 1%

In the case of completions there was a similar breakdown between affordable and market value.

The same report showed 34,995 houses were fully built in total, with the split being:

24,023 affordable
10,972 market value

And when it came to the type of tenure, the latest figures released showed a steep rise in the number of people choosing to buy as part of a shared ownership scheme.

Across the past four years, the amount of affordable properties being purchased in this way was:

2016-17 – 11,153
2017-18 – 18,547
2018-19 – 20,881
2019-20 – 23,122

By contrast, individual affordable home ownership saw a slight dip in that time, with the numbers showing the amount of houses owned in this way to be:

2016-17 – 1,622
2017-18 – 1,657
2018-19 – 1,234
2019-20 – 734

Perhaps unsurprisingly, the figures highlight how increasingly difficult it’s becoming for people to purchase a home on their own, even at an affordable rate. Luckily, the introduction of the Affordable Homes Programme has meant that people looking to apply for this kind of accommodation have had their needs addressed.

The scheme aims to build 130,000 new affordable homes between 2021-2026, with over £7.39 billion being made available in funding by Homes England.

Government schemes to help with buying an affordable home

As we’ve discussed, the nature of affordable housing means that it falls on the UK government to ensure people are able to find homes they can afford to live in. There are a number of policies, schemes and grants which have been introduced to help with just that.

Help to buy (equity loan). In this instance, the government will lend you up to 20% of the equity (or up to 40% in London) on a new-build home. You need to pay a minimum 5% deposit on the home, as well as a 75% mortgage. For the first 5 years you won’t need to pay any interest on the loan, but you will do after this period.

If you sell the property you’ll have to pay back the outstanding amount. This is calculated by looking at the market value of the home at the time. That means if your house price falls, so too will the amount you need to pay back on the equity loan. Additionally, if your house price increases so will the amount you have to pay back.

In order to qualify for this scheme the home must cost less than a maximum figure which applies to your region.

Those figures are:

- East – £407,400
- East Midlands – £261,900
- London – £600,000
- North East – £186,100
- North West – £224,400
- South East – £437,600
- South West – £349,000
- West Midlands – £255,600
- Yorkshire and The Humber – £228,100

Source: Own Your Home

The owner of the property must also live in the premises.

Shared ownership. This is becoming an increasingly popular option for new homeowners. It allows you to buy a proportion of your home through a housing association, with you paying the mortgage on the percentage of the home you own, and rent on the remainder.
As an example, you might buy a 50% share of a home which costs £200,000. This would mean you own the first £100,000, but would need to pay rent on the remaining £100,000. This scheme gives you the opportunity to own a percentage of your home, and you can buy more shares (the process is referred to as staircasing) till you own 100%. That means in time you can work towards owning the whole thing, although this cannot be achieved by paying rent alone. You will need to save the funds to buy a higher percentage of shares outright.
Right to Buy. If you have been living in a council or housing association home for at least three years, you can apply to buy the house outright. Often this will be offered at a discounted price. This discount will be capped depending on where you live in the UK.
You’ll also be able to make a joint application with anyone else who has been living in the same premises for at least a year. However, you will be denied the Right to Buy discount if you’re under threat of eviction, there’s a shortage of housing, you have large debts, or your home is reserved for elderly or disabled people.
Lifetime Individual Savings Account (LISA). If you’re aged between 18 and 39 and want to buy a home that costs less than £450,000, it might be worth opening a LISA. You can contribute up to £4,000 a year, until you’re 50. The government will add 25% on top of that yearly, capped at £1,000.
What’s more, you can combine your LISA with another first-time buyer to purchase the same property. If you’re aged under 60 and are taking money out of your account, it must be put towards a deposit, or else you might face a penalty. If you are over 60 or have a terminal illness, you are able to without being penalised. LISAs can be used for funding your retirement.

Advice on buying an affordable property

If you’ve never purchased a home before, knowing how to go about doing so will be understandably tricky. Luckily there are a whole host of things first-time buyers can keep in mind when thinking about purchasing an affordable home. Some of the most important include:

Consider taxes. Just as with anything in life, tax looms over your head when buying a home. The most costly of these will be Stamp Duty. The amount you have to pay will vary depending on the price of your home, when you buy it and whether or not you are a first-time buyer.

There was a decrease on Stamp Duty between 1st July 2020 and 30th September 2021, but this has now ended.

That means the current price for anyone looking to work out how much they own is:

- - The first £125,000 – 0%
  - The next £125,000 (£125,001-£250,000) – 2%
  - The next £675,000 (£250,001-£925,000) – 5%
  - The next £575,000 (£925,001-£1.5m) – 10%
  - The remaining amount – 12%

For example, if you bought a home with a total value of £600,000, you would pay a total of £19,500 in Stamp Duty:

- - The first £125,000 (0%) – £0
  - The next £125,000 (2%) – £2,500
  - The remaining £350,000 – £17,500
Assess major appliances. These are the items which are going to cost you the most to replace, so it’s handy to assess if they’re operational (or if the property comes with them) before buying.

They include the likes of:

- Dishwashers
- Refrigerators
- Freezers
- Kitchen stoves
- Washing machines
- Tumbledriers
- Microwaves

These kinds of items can be really expensive (adding on thousands to your final costs), so be sure to know where you stand with each before committing to any kind of purpose.

Research the neighbourhood. Why not consider doing some digging into the neighbourhood a potential house is located in. You might find that it’s nowhere near basic amenities, or that you aren’t in a good catchment area for schools. Also assess how house prices have risen or fallen in the area across the past decade or so. If you work from home, ask yourself whether the broadband speeds are quick enough to do your job properly. Could you be investing in a property on the decline?
Improve your credit score. While it’s really important to have enough saved up for your deposit, it’s just as key to have a credit score which shows a lender you can be trusted to pay back a large loan like a mortgage. There are a variety of ways someone in the UK will be able to improve their credit score:
- Paying bills on time
- Avoid missing payments of any variety
- Try not to have too many credit applications open at one time

If you’d like to see what your credit score currently looks like, make sure to download our app and check yours for free.

Advice on saving for a mortgage

Knowing where to start when it comes to saving for your first home might seem daunting. With such a large lump sum needed for the deposit alone, it’s easy to feel overwhelmed. Thankfully, there are a number of methods you can employ to help with managing your money.

Those include:

Put a regular, fixed amount aside. If you’re lucky enough to have spare money to set aside at the end of the month, take a chunk of this and place it into a savings account. Even if the idea of being able to afford a full deposit seems like years away, your savings have to start somewhere. This could even be something you do before you’re seriously considering purchasing a home.
Sublet your room. If your landlord is okay with it, you can sublet a part of your rented accommodation to serve as a source of extra cash. This will save you up to 50% of your rent on a monthly basis. You could choose to put a part or all of this money aside towards the cost of a deposit. Always make sure you have permission first to do this.
Set up a monthly standing order. If you aren’t confident about your own ability to put money aside off your own free will, you can set up a standing order to work as something of a self-regulated ‘bill’. While this doesn’t sound great, you aren’t actually losing out on any money as it just transfers from one of your accounts to another. This might be easier to manage, as it can be more fluidly worked into your budget.
Downsize for the sake of your rent. If you’re finding it a real challenge to pay rent, then it might be time to consider downsizing for a more affordable monthly price. This is obviously quite a big ask, so only take this measure if you’re finding your current rent makes it impossible to save at all.

Advice on finding affordable property to rent

If you’re not quite at the stage where you’re able to commit to a full mortgage, renting is a good option. While some see this as throwing money into a bottomless pit, renting can actually be a really good opportunity to spend time saving for your future home, without the added pressure of ownership.

When looking for a suitable location to rent, there are a number of considerations which need to be kept in mind.

Find out if you are entitled to any of the following:

Universal Credit. This form of payment support has been introduced as a replacement for a number of benefit services in the UK, including Housing Benefit. This means some people will be eligible to get a discount on their rent if they qualify. To do so, they must:
- Be aged 18 years or older
- Be under the state pension age
- Live in the UK
- Have less than £16,000 in savings
Council tax reductions. You can get 25% off your council bill if you are the only adult person living in your home. If everyone in the home is a full-time student, you won’t have to pay any council tax at all. If nobody living in your home, including yourself, counts as an adult you can receive a 50% discount.
You can also claim for a council tax reduction if you are on benefits, have less than £16,000 in savings, or if you’re the carer for a person with severe learning disabilities.
Rent deposit schemes. There are a number of schemes which allow people to get help with the paying of their rent. The council will lend you money in advance to pay tenancy deposits, with you paying them back over time. The cash deposit might also be replaced in favour of a bond. This acts in the same way, with the provider paying your landlord, followed by you eventually paying them back.
Talk to your landlord and letting agent first. You’ll want to have a clear picture of just how much is covered in your rent, and what is an additional cost. Ask your landlord or agent questions like:
- What bills are and aren’t covered in rent?
- Is there the opportunity to renew my tenancy or end it early?
- What advanced fees need to be paid?
- How will my tenancy deposit be protected?