A leg up for the low paid

Melanie Bien looks at the help on offer to public-sector workers who want to get on the housing ladder - or move up another rung
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Buying your first property is difficult enough without the added financial constraints that come with being a key worker.

Buying your first property is difficult enough without the added financial constraints that come with being a key worker.

Although the definition of a key worker is constantly widening, the term is generally taken to mean anyone who provides a public service - from teachers, nurses and police officers to health and social workers, train and bus drivers, paramedics, firefighters and local authority planners.

These workers are usually on low wages, making it hard for most of them to buy a home in city centres close to their place of work. Since many work unsociable hours, life becomes easier if they don't have to commute long distances.

With many key workers leaving their professions because of low pay, recruitment and retention in the public sector has become a source of concern for the Government. The recent promise by the Deputy Prime Minister, John Prescott, of an extra £5bn in funding for low-cost housing is one way of addressing the problem.

From next April the current system will change slightly, as the Starter Home Initiative (SHI) will be replaced. This provides an interest-free government loan to key workers to enable them to buy a property; the loan has to be paid back when they sell up. SHI was introduced in 2001 but has fallen short of its target; around 9,000 of a projected 10,000 public-sector workers have bought a home using the scheme.

The replacement for SHI is aimed not just at first-time buyers but also at people at different life stages, allowing those who already have a property to upgrade to a bigger family home. This change addresses a criticism of the current system, which helped mainly those buyers trying to get on the housing ladder.

A choice of four products will be available from April: Homebuy, London Challenge Key Teacher Homebuy, Intermediate Renting, and Shared Ownership on new-build schemes.

The Homebuy scheme will provide an equity loan of at least 25 per cent of the property value up to a limit of £50,000. The London Challenge Key Teacher Homebuy will provide loans with a higher value limit, although not all teachers are eligible.

Intermediate Renting will allow key workers to pay rent that is lower than the open market rate, while Shared Ownership on new-build schemes will enable the purchaser to buy a minimum 25 per cent share of the equity in a property. Rent is payable on the balance. The new schemes, aimed to help 6,000 key workers a year, will be administered by the Housing Corporation.

You don't have to be a key worker to benefit from an affordable housing scheme. The following are open to all those on low incomes:

* Cash Incentive schemes: Grants are paid to existing local authority tenants to help them buy a home of their own.

* Shared Ownership schemes: Applicants buy a share of a property and pay rent on the remaining share to the housing association.

* Do-It-Yourself Shared Ownership: This scheme is similar to Shared Ownership but properties are selected from the open housing market.

* Right to Buy: Local authority tenants qualify to buy their property after two years of renting and can enjoy discounts of up to 32 per cent on houses and 44 per cent on flats. There is a price cap, however, according to region.

Specialist mortgages are also available. BM Solutions, part of Birmingham Midshires bank, used to offer a keyworkers' mortgage to nurses, teachers and other public-sector employees. It offered 2.5 times the combined income of up to four people buying together but was recently discontinued.

Ray Boulger at mortgage broker Charcol has doubts about such specialist schemes. "The BM Solutions mortgage wasn't good value," he says. "In most cases, we can provide the client with a better deal."

How a 999 man was fast-tracked to a mortgage

Matthew Edwards, a paramedic, used a government-funded Key Homebuy loan to buy his first home in Chingford, north London.

On his income, the 28-year-old, who is based near the Royal Free Hospital in Camden, found he could secure a mortgage of only £70,000 - which doesn't go far in that part of London.

But the welfare department at the London Ambulance Service suggested he took out a Key Homebuy loan - part of the Government's Starter Home Initiative. The scheme allows key workers to select a home of their choice, within certain limits, and use an ordinary mortgage to fund the balance of the purchase price.

"The whole process was very straightforward," says Mr Edwards. "Two weeks after being awarded the loan, I found my flat. I didn't hang about - I phoned the agent to make an offer straightaway."

He was able to borrow £35,000 to put towards his £105,000 flat and was finally able to move out of his parents' house. He used his savings to pay his legal fees and moving expenses. When he sells the property, Mr Edwards will have to repay the loan.