October 27th, 2014.
What ‘Rent to Buy’ Means for Landlords
Rent to Buy, not to be confused with Buy to Let, is a new £400 million government scheme to boost the construction of rental homes in the UK. This is all a part of the government’s aim to help more people in the UK make their way onto the property ladder, however it has received lots of mixed reactions.
What is it?
The ‘Rent to Buy’ project will see housing associations and other providers bidding for a share of the £400 million on offer to build 10,000 one and two bedroom homes across the country. Upon completion of the build, the landlords are then required to rent the properties out at below-market rates for a minimum of seven years. Having the tenants paying below market rates will help them to free up capital and give them the chance to save up a deposit. This deposit will then enable them to purchase the property they are in or another one of their choosing. At the end of this ‘low rent’ period the tenant will then be given the first refusal on buying the property – theoretically allowing them to upgrade from tenants to homeowners seamlessly.
Will it work?
There is a lot of criticism regarding this scheme, many suggesting that although it sounds good in theory it is nowhere near enough to have any sort of significant impact. In a country where the population is in excess of 60 million, building 10,000 homes is barely a drop in the ocean towards aiding the property supply problem that affects the UK. In the same way that the ‘Help to Buy’ scheme didn’t do enough to make houses affordable for many first time buyers, ‘Rent to Buy’ will only be available to a very lucky few. If the government are looking to make a significant impact then there needs to be much bigger changes being implemented to address this issue.
Benefits to Landlords
This scheme could be extremely beneficial for landlords who are looking to sell their tenanted properties. Here the landlord will be able to collect rent from the tenant until they have amassed the funds needed to buy the property – at full asking price. This means that not only will the landlord achieve the price they wanted for the house, they will do it while receiving revenue from the rent. In many cases, you are able to simply ‘let and forget’ after finding a tenant, as it will be their responsibility to take care of any repairs or jobs that need doing around the home. This is ideal for private landlords who don’t have time to run around to their tenants every needs or for anyone who has many properties that they let out in this fashion. As there is a large pay off at the end, the landlord is able to reinvest further in property or to use their profits elsewhere. This scheme will also dramatically reduce the risk of the tenants not paying rent as it acts much like a mortgage, in that if a payment is missed they are at a risk of losing the home.
While this scheme has been widely criticised, it does have the potential to be of much greater benefit to private landlords than housing associations, helping to make it much easier to get the full asking price for your property. If you’re thinking about setting up your properties to be available for ‘Rent to Buy’ thentalk to Pure Commercial Finance today to ensure that your finance package is completely tailored to your needs.