Loans top-up for starter homes initiative

Ministers have found a cheap way to help 2,000 nurses and teachers find homes after admitting that their original budget to house key workers would have fallen short.

Local government secretary Stephen Byers will today set out how the government plans to spend its ?250m starter homes initiative.

The plan will include a ?20m scheme to give ?10,000 interest free loans to 2,000 key workers.

The loans have been introduced as a cheap way of topping up the starter homes initiative to allow the government to meet its manifesto commitment to help house 10,000 key workers priced out of the property market in the south-east.

If the government were had gone ahead with the scheme's original calculations, it would have fallen short of the manifesto target by 2,000 homes.

Ministers had hoped that 10,000 homes could be provided through an average grant of around ?25,000 to housing associations.

But the bids received for the initiative showed the scheme was based on optimistic assumptions about housing costs in London and the south-east. In London the average bid was ?35,000 per home.

Now the initiative is to be split into two parts. Around ?230m will be spent on 8,000 homes at an average grant of ?28,750 on each home, provided in line with the original intentions of the scheme.

The bulk of this cash will provide so-called shared ownership homes, where the housing association typically pays half of the cost of the home and the key worker meets the cost of the other half with a mortgage.

The remaining ?20m will be spent on ?10,000 interest free loans for 2,000 key workers.