A new scheme to encourage young people trying to get on the housing ladder has been announced by Eric Pickles, Secretary of State for Communities and Local Government. The Rent to Buy scheme will offer tenants the chance to rent their homes at below market rates and then to buy the property when the tenancy comes to an end.
Who qualifies for the scheme?
Behind the scenes of the scheme the government is providing £400 million of cheap loans to Housing Associations to build new homes in the UK. These will then be rented out at below market levels for seven years to tenants trying to get on the housing ladder – the maximum amount of rent that can be charged is 80% of the market value. The scheme is aimed at those with low incomes and total household income must be less than £66,000 a year in order to qualify for the scheme.
This initiative is part of wider efforts in recent months to try and increase the number of properties being built and to give those trying to buy homes – in particular first time and low income buyers – a helping hand. It’s part of the same school of thought as the Help to Buy scheme, which has seen more than 48,000 homes purchased, 82% of which were for first time buyers.
This represents a great opportunity for people who are looking to get on the housing ladder but don’t have a deposit to do so. Without the pressure of a mortgage, the risk of being rejected under the new lending affordability criteria and taking away the risk of a repossession, the scheme is making buying a property a much less scary prospect for those without huge incomes. There is the advantage of the reduced rent, which should give tenants/buyers the opportunity to save for a deposit, and Rent to Buy may offer access to properties that otherwise wouldn’t be affordable. Buyers don’t have to commit to the purchase at the start of the agreement so it’s much easier to play it by ear and see how the rental period goes and an arrangement like this can also be useful for building up good credit behaviour.
Limitations of the scheme
However, this kind of scheme is not entirely new and it does have its limitations, in particular the financial cap for applicant households. With average house prices in London well above the £500,000 mark even those earning more than £66,000 struggle to get on the housing ladder and this scheme does nothing to help those who fall between being a low income household and actually earning enough to buy a £500,00+ property. There may also be issues finding a suitable property that is available within the scheme – one that a buyer actually wants to purchase or rent. If house prices rise during the rental period (which is likely) then this could put the property, and the rent, outside of the buyer’s income and, given that the number of properties available is going to be very limited, competition for the scheme could be fierce.
There’s no doubt that Rent to Buy will be enormously beneficial for those who qualify for the scheme and are able to find a property that suits them. For others who still want to get on the housing ladder but aren’t eligible for Rent to Buy help, the government may need to put its thinking cap back on.