The key to the door
The average house in London now costs eight times the average teacher's salary. And, believe it or not, other parts of the South East make that seem cheap. For many teachers hoping to get their feet on the property ladder, the only hope is one of the interest-free equity loans available to key workers in London and the surrounding areas.
The interest-free loans began in 2001, with the launch of the Starter Home Initiative (SHI). It offered a leg-up to more than 3,000 teachers, but with loans restricted to pound;10,000, it helped only those already on the brink of affording their own home. In March 2004, it was replaced by the more generous key worker living programme (KWL) and the sums available leapt to pound;50,000 - or even pound;100,000 for teachers working in London and identified as potential future leaders, such as those on the fast track programme.
These homebuy loans are means-tested, with an allowed maximum income of Pounds 60,000 for the household. Buyers are supposed to be able to meet 75 per cent of the purchase price through mortgage and savings, though there's a degree of flexibility. "We try to help those who most need the money,"
says Colin McLennon of Metropolitan Home Ownership, which runs KWL in north London. "If you can raise pound;90,000, that's usually enough to trigger the full pound;50,000 loan."
Interest-free loans of pound;50,000 might sound too good to be true, but KWL isn't a get-rich-quick scheme. Although you're not charged interest on the loan, when you sell your house the amount you pay back is calculated as a proportion of the purchase price. So if you borrow pound;30,000 and the house doubles in value, you'll have to hand back pound;60,000. With the annual increase in property prices typically higher than the interest rates charged by mortgage lenders, you're likely to make less money on your property than if you just took out a bigger mortgage.
Of course, the scheme is designed to help those who are taking out the biggest mortgage available to them, yet still can't afford to buy. And in many cases, even the full equity loan isn't enough to bridge the gap, especially for single teachers in the capital. For example, a salary of pound;30,000 can secure a mortgage of about pound;100,000 - but without hefty savings in the bank, that sort of budget will have London estate agents bundling you out of the door. An extra loan of pound;50,000 might just bring the cheapest property within touching distance but it's still likely to be a struggle.
Other KWL schemes can step in here. The "intermediate rent" programme makes some properties available for rent at around 80 per cent of what they could get on the open market. More interestingly, the New Build Homebuy scheme offers the chance to part-own a new house. In this case you buy a share of the property, typically 50 per cent, and pay subsidised rent on the rest, with the option to increase your share when you can afford it. New build projects include converted warehouses and state-of-the-art flat pack homes, and in terms of quality and location, you're likely to get something much better than if you rummage at the bottom end of the open market. "The new houses are usually part of private developments," says Tesh Kataria of Tower Homes, which runs KWL in south London. "They're built to the same specifications as the other houses, with the same kitchens and bathrooms."
An equity loan is still most people's preferred option, however, because it gives them the freedom to choose the house they want. But teachers need to move fast, and be persistent; demand for loans is so high that funding can run out just months into the financial year. To date, more than 4,000 teachers have benefited from the scheme, but many more have been unsuccessful. "The best time to apply is April or May," says Mr McLennon.
"That's when most money is available."
The budget for the second phase of KWL (2006-08) is around pound;400 million, which is well down on the pound;725 million allocated to phase one (2004-06). But the Government hopes to make up for the reduced funding through a new agreement with mortgage providers. From October, a group of lenders, including HBOS and Nationwide, has pledged to match KWL support with interest-free loans of their own. "It probably won't mean teachers get more money," says Tesh Kataria. "But it will mean the KWL funds stretch further and help more people."
But what about those who find themselves in property hotspots outside London, the East and the South East of England, the only three regions with KWL schemes? A report by the Halifax earlier this year revealed that price surges had left teachers struggling to afford housing all across the country. It found that in seven out of 10 UK towns, the average first-time buyer's house was beyond teachers' means. In the South West, all 34 towns surveyed were judged out of reach of most teachers. Even cheaper areas such as Yorkshire and Humberside now have average house prices of four to five times a typical teaching salary.
It's possible that KWL will be expanded to other areas when current arrangements change in 2008. It also seems likely that the level of funding will need to increase. A report commissioned by the National Housing Federation suggests that in the next five years house prices will rise by 50 per cent, while salaries will go up by just 19 per cent.
"This isn't something that's going to go away," says Colin McLennon.
"Unless the housing market changes drastically, key workers are always going to need financial assistance if they want to become homeowners."
SHOW ME THE MONEY
* The key worker living programme (KWL) is administered by local housing associations. Contact details are available at www.teachernet.gov.ukeducationoverviewbriefingnewskeyworkerliving
* Key workers include teachers, police officers, NHS staff, prison workers, firefighters, ambulance staff, social workers and some other local authority employees. Teachers in the independent sector don't qualify, though teachers in FE colleges, academies and city technology colleges are all eligible
* Teachers working in those parts of the country not covered by KWL may still qualify for regional homebuy schemes - called Homestake in Scotland - which offer equity loans of up to 25 per cent of the purchase price. These are aimed primarily at those on low incomes, but many regions are extending the scheme to include key workers. Criteria vary from area to area and eligibility will depend upon your individual circumstances. You should contact your local housing association for details: www.housingcorp.gov.uk; www.housing.wales.gov.uk; www.communitiesscotland.gov.uk
* pound;100,000 equity loans are available as part of the London Challenge programme. Eligibility is determined by points awarded for working in challenging schools, teaching shortage subjects, or being an AST, fast-track graduate, or school leader. Full details on: www.ealing.gov.ukserviceseducationworking_with_schoolsjobs_in_schoolsli ving_and_working_in_ealingaccommodation.html
* If you take out a KWL equity loan and then leave teaching, you must repay the loan within two years. But there's also the option of an agreed career break of up to three years. If you then return to teaching, you continue to benefit from the loan
* Unlike SHI, which was restricted to first-time buyers, KWL loans are also available for teachers who wish to move to a bigger house, or to be closer to work
* There's nothing to stop colleagues clubbing together to make a joint application for a loan, but their combined (or "household") income must be less than pound;60,000, and there can only be one loan on the property