Key workers to get mortgage aid

Key public-sector workers and young professionals priced out of property hot spots such as the booming south east could be offered subsidies to buy a home or rent at below-market levels.

With hospitals, schools, shopping centres and big companies facing a growing labour shortage, particularly in Greater London and the M4 corridor, ministers are considering a mortgage subsidy scheme for young teachers, nurses and other public-sector workers.

It could mean interest-free top-up loans of around £50,000 for people on average incomes unable to get a mortgage in the south and London, where house prices rose by 23% last year.

But the government is also keen to develop a "third way" in the rented sector between council housing and more expensive private landlords.

This is seen as essential for younger people with short-term contracts who either do not want to be tied down with a mortgage or would not qualify for a loan because lenders say they have no job security.

Proposals to be unveiled tomorrow by John Prescott, the deputy prime minister, would re-direct government funding for housing associations - the only organisations now building low-cost homes for rent - towards mid-range properties in certain areas.

One of Britain's first factory-built multi-storey blocks, recently erected in Hackney by the Peabody Trust, a long-established housing association, is seen as the way forward by the housing minister, Nick Raynsford.

Weekly rents for its 30 one- and two-bedroom apartments, ranging from £136 to £158, are said to be around 20% below the market level. Peabody is also experimenting with other lower-cost schemes, including shared ownership.

The government initiative, which will form part of a housing green paper, is reinforced today with research from the National Housing Federation showing that professionals are increasingly being priced out of the housing market.

The federation, representing mainly housing associations, says that in nearly three-quar ters of English counties potential homeowners need to be earning more than £20,000 a year to qualify for a mortgage.

Yet a teacher, with three years experience, is often earning only £18,303 while a nurse with similar experience is earning just £16,000.

In eight English counties, it says an income of £40,000 is needed to buy a home with a 95% mortgage, although in parts of inner London such as Camden the income qualification jumps to more than £70,000.

Jim Coulter, the federation's chief executive, said: "House prices are no longer a problem for just London and the south east. Across the nation ... people are priced out of a home. The current buoyancy in the housing market masks real dangers not only for key services and the economy but also for people and their families."

He added: "While some are lucky enough to see the value of their home soaring in value, others are losing out as prices rise. We must make sure that homes remain affordable and accessible to those on lower incomes."

Mr Prescott is considering a an interest-free scheme which would give top-up mortgages of up to £50,000 on homes costing £125,000 or less. The aim is to run the scheme with local councils and housing associations - although the government is likely to face criticism that it is helping middle-England at the expense of lower-paid workers.

The "starter home" initiative, which will need the back ing of the Treasury, means that potential buyers would still have to find a commercial lender to give a £75,000 mortgage for a £125,000 home. The government would top this up with an interest-free £50,000 - potentially saving buyers almost £2,000 a year.

The green paper tomorrow could also signal the end of council housing in many areas. Ministers are keen for town halls to offload estates to housing associations or new social companies. Mr Raynsford recently approved the removal of almost 300,000 homes from councils to other agencies - the biggest such move so far.

But in a compromise move, it is likely some councils will be allowed to set-up companies to manage their homes.