As part of the Government’s £23 billion Affordable Homes Programme, Communities Secretary, Eric Pickles, launched a campaign this September that aims to help young professionals get onto the property ladder more easily.
This is fantastic news for conveyancing, as the Government is showing full support to an uptake in homeownership. However, is this new “Rent to Buy” scheme really going to help the housing crisis? Will it make first time buyer mortgage deposit saving more accessible?
We have recently seen similar programmes being, including “Help to Buy” with its low deposit mortgage rates, and “Right to Buy” which aims to provide homeownership for council tenants. Such schemes have helped many thousands of people to buy their own home, but how is the latest scheme any different?
From 2015, housing associations and other accommodation providers will be able to bid for a share of the £400 million in low-cost loans, set aside to build up to 10,000 new homes within 3 years. Around half of this about will be allocated to London alone, and associations will have 16 years to settle the loans. They will also be given the power to set their own eligibility criteria for prospective tenants.
That said, the majority of the properties to be built will be just 1-2 bedroom apartments. Though tenants will be given first refusal to buy the property, when you consider many will be looking to upgrade to larger homes to accommodate a growing family, this may not prove to be the best system.
Rental price discounts will be at 20% below market rate. When you look at the figures however, this doesn’t actually leave tenants with prospects to acquire sufficient funds to buy.
Tenants will be given the reduced rental rates for a minimum of 7 years, and will be guaranteed for first time buyers who match the criteria. Once broken down, the average figures don’t amount to what is required;
Average UK rent = £729 (exc. London) / £921 (inc. London)1
20% discount in rent = £145.80 / £184.20
New rental price = £583.20 (exc. London) / £736.80 (inc. London)
Funds acquired over 7 year period = £12,247.20 / £15,472.80
When you consider the average UK house price is £177,8242, neither of these savings amounts would cover even a 10% mortgage deposit, let alone any additional fees.
As it stands, tenants who become part of the “Rent to Buy” scheme will need to participate for a minimum of 11 years — by which time the average house price may have increased further.
That said, the annual salary threshold for consumers wanting to join the scheme is currently £33,000 for single occupants and £66,000 for couples. Therefore this could prove a success for those within the higher salary bracket, meaning a significant uptake in conveyancing services.
This seemingly endless cycle of low-cost tenancy and increasing property prices may also leave participants trapped. If tenants are unable to buy the property, or rent privately elsewhere, they will need to remain in the scheme for a longer period. The housing associations must provide their properties at below-market rates to tenants for a minimum of 7 years, but may be obliged to provide longer tenancies if occupants are unable to vacate.
Granted this programme will boost the development of new properties, which should reduce the housing shortage. In addition, if successful, you should see a surge in uptake of conveyancing services amongst first time buyers.
Though do you agree with the proposed plans, and do you see this encouraging first time buyers?
1sourced from HomeLet Property Rental Index
2sourced from Land Registry House Price Index