The Homes and Communities Agency (HCA) published on-line guidance of how developers and local authorities can bid for two elements of the additional £635 million housing funding package announced in April's Budget.
A total of £400 million of the package has been put in to the Kickstart Housing Delivery Programme (KHD) to unlock sites that have stalled, but where development could proceed immediately.
The HCA would offer a contribution to infrastructure or development costs - complemented by support for affordable housing and HomeBuy Direct - for high quality housing projects that provide a mix of tenures. The initiative is expected to deliver up to 9,000 new homes.
As part of the funding criteria, only schemes that start on site within the financial year 2009/10 will be eligible. Funding will be available to a range of organisations, including housing associations and private sector developers.
The HCA will seek to recover its investment and to share in any uplift in values if and when the market improves. Bids will be accepted up until 8 June 2009 with the announcement of bidders who are successful at this expressions of interest stage in late July.
Commenting on the KHD, Sir Bob Kerslake, Chief Executive of the HCA said:
"This funding is in addition to our existing national affordable housing programme and will be an important 'transfusion' into schemes that have potential to be brought back to life.
We will be very selective about the schemes that are eligible. Criteria relating to quality, speed of delivery and meeting local needs will be crucial in attracting funding."
lso coming into effect - local authorities can also bid for a slice of £100 million of extra funding to deliver new council homes for social rent. The money is broadly a 50-50 split of £50 million in the form of social housing grant, with the remaining £50 million set aside as (capital) cover for the 'prudential borrowing'.
Ministers have made it clear that any homes built under the scheme will be eligible for exclusion from the HRA (Housing Revenue Account) subsidy system. Exclusions will be subject to individual agreements between the Secretary of State and each local authority.
The funding, which will be available over two years, is expected to deliver up to 900 new homes for social rent, built to high environmental standards. All homes must be completed in the financial year 2010/11 and the deadline for the first round of bidding will be 31 July 2009 with successful bidders being announced in September.
According to new research, whilst house price falls and interest rate cuts have made property more affordable, much of the improvement will be reversed when rates start to rise again.
Capital Economics said that while the cost of paying a mortgage was currently 10% less than its long-term average, affordability would quickly worsen again once the Bank of England base rate rose back to about 4.5%.
Improvements in housing affordability have prompted many first-time buyers, who had previously been priced out of the market, to start househunting again, causing economists to say that activity in the market may have bottomed out. But affordability constraints could become a factor again once interest rates start to rise, particularly if this is accompanied by higher tax rates.
Seema Shah, property economist at Capital Economics, said:
"Measures of mortgage affordability are suggesting that houses are already good value. But these measures are reflecting the abnormally low current level of interest rates.
"When interest rates return to normal, affordability will deteriorate. This effect will be heightened by any rise in personal taxes."
The Group said new borrowers were currently devoting an average of 34% of their monthly take-home pay to mortgage repayments, 10% less than the long-term average of just over 37%.
It said this represented a dramatic turnaround from two years ago when new buyers typically spent 52% of their income on mortgage repayments, 40% more than the historical average.
But it warned that nearly half of this improvement had been brought about by the steep falls in the Bank of England base rate since October last year, which have reduced average mortgage rates from 6% at the end of 2007 to 4% now.
If average mortgage rates had remained unchanged at 6%, housing affordability would still be 15% worse than the long-run average, despite the steep house price falls seen since 2007.
The Group said that while mortgage interest rates were not expected to rise in the near future, with most economists expecting the Bank of England base rate to remain unchanged at 0.5% for at least the rest of the year, it was reasonable to expect them to rise again in the medium term.
If the average mortgage rate rose to 6% or 7%, consistent with the base rate returning to 4.5% or 5.5%, and house prices remained at their current level, housing affordability would continue to be above the long run average by 2013, unless average earnings grow by at least 4% a year.
But if mortgage rates rise to 7% over the medium-term and average earnings fail to grow at all, property affordability will deteriorate to be 25% worse than the long-term average, with new homeowners spending about 46% of their take-home pay on monthly mortgage repayments.