Mortgage aid plan for key workers

Ministers are preparing to unveil plans for mortgage subsidies to help teachers, nurses and other professionals who are priced out of property hot spots, in the face of new research revealing a widening gap between house prices and incomes.

A new urgency has been added to the government's proposed starter homes initiative with a study by leading housing organisations today warning that England faces an acute shortage of accommodation because more people are living alone.

The research, for the Our Homes, Our Future campaign, shows that in the past 30 years house prices have increased by 135 % and wages by only 60 %.

It warns that special measures are needed to help the 2m people expected to be living alone by 2016 - most of them over 30.

"These people are at particular risk because many of them live in the south-east of England and are reliant on only one income to buy a home in a market already unaffordable to many," it said.

The report, by the Cambridge Centre of Housing, Planning and Research, also warned that key workers in areas of high demand are at risk because their nationally-negotiated wage rates do not adequately reflect higher than average house prices.

With leading housing organisations warning that "targeted" help is now needed, ministers are poised to promise interest-free top-up loans, cash for deposits and help with shared ownership schemes under which a publicly-funded housing association might own half the equity of a home.

The housing minister, Nick Raynsford, has said there is scope for "innovative new thinking" in this area. The government wanted to hear from employers who would make a contribution to a £250m fund - kicked off with government cash - which would be targeted at essential workers.

One idea floated has been for top-up mortgages of up to £50,000 on homes at the lower end of the market costing £125,000 or less. Buyers would have to find a commercial lender to give a £75,000 mortgage, with the government scheme topping this up with £50,000 interest free.

David Butler, chief executive of the Chartered Institute of Housing, which helped fund yesterday's report, warned: "The housing market is failing a significant section of the population.

"Our country's continued prosperity depends on these issues being addressed by targeted intervention at a local level.

Richard McCarthy, chief executive of the Peabody Trust, a large social landlord in London which also helped sponsor the research, warned that in London alone there was now a shortage of nearly 36,000 essential workers due mainly to the lack of affordable accommodation.