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Is Rent to Buy the key to unlocking home ownership? Marketwatch

  • 01/10/2014
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It seems the government loves to recycle its '.. to buy' series and this time tenants have become the focal point of the scheme.

The outline of the Rent to Buy scheme was ushered in last week which is offering renters the opportunity to rent a new build home at 80% of the market rental value with the intention of buying the property seven years.

Help to Buy has been a sucess. We don’t just know this because of the statistics, but David Cameron himself told us so at his party conference speech today. Can Rent to Buy hope to come anywhere near its successful older brother? We’ve asked our panel of experts for their opinions.

Andy Frankish, new homes director at New Homes Network, thinks the government needs to safeguard the scheme from applicants who have no intention of purchasing after the rental period.

Alexander Hilton, director of pro-tenant group Generation Rent, considers whether the tenant or developer stands to the benefit the most from the scheme.

Steve Turner, director of communications at the Home Builders Federation reflects on the political spotlight shining on home ownership.

andy-frankishAndy Frankish is new homes director at New Homes Network

I welcome most initiatives that aim to help increase availability, volume and affordability of newly-built homes so at first glance the government’s announcement on Friday is itself very welcome.

There are lots of questions still to be answered but this would appear to be a scheme designed to help young working professionals into starter-type homes. The focus on London, where half of the £400m is being allocated, will raise some concerns. But again I understand that this is demand-led scheme and there is no harder place in the UK for young people to buy their first home.

I’m sure there will be those that say we should be doing more for lower incomes but we do have to start somewhere and as part of a mixed tenure development like the proposed garden cities you can see this being very popular for those looking to get on the ladder.

One concern I have about the scheme is that it is not just abused as a cheap form of rent with no intention to buy. We have seen rent to buy schemes before where applicants had neither the intention nor ability to ever take out a mortgage. The housing association involvement in assessing the needs of potential applicants is vital to ensure these customers are serious about home ownership.

Some creative thinking about how the savings made from the reduced rent could be deposited in an escrow account to ensure a deposit was built up could be something for lenders to consider who might want to support this type of scheme for existing customers perhaps?

It will be interesting to get feedback from the housing association to see if this type of funding does excite them. I’m sure more details will be coming out in future months and I look forward to keeping a close eye on the opportunities it creates.

alex-hiltonAlexander Hilton is director of pro-tenant group Generation Rent

The government plans to lend £400m to developers to build 10,000 rent to buy homes over the next three years. Both the government and opposition have alighted on rent to buy schemes as something that will win renters’ votes but looking at the detail you realise that tenants get little benefit from that investment.

The basis of the scheme is that the government lends developers £400m at a cheap rate for 15 years, but they’re obliged to rent those homes at 80% of market rate and to give the tenant first refusal on the purchase of that home seven years later.

Any place in Britain where there’s a thriving jobs economy is seeing house price rises each year of between 11% and 18%. If you presume one of these homes is worth £200,000 in year one, it will have doubled in price by year seven.

The tenant will have saved maybe £20,000 in rent over those years but the deposit will have increased by £50,000. The tenant will be £30,000 further from raising a deposit than they were when they started.

The property developer on the other hand does a lot better. The home having doubled in price in that time means they have made £200,000 in capital gain. Over seven years, that £400m leverages £220m in rental discount for tenants and £3.3bn of capital gain for developers. So you have to ask whose benefit this is really for?

steve-turnerSteve Turner is director of communications at the Home Builders Federation

There is no silver bullet or single policy that is going to solve the UK’s housing crisis. It is a situation we have allowed to develop over decades and it will take both time and a range of policies to address.

We need to be providing more of all types of new homes, in all areas, to suit all budgets. Clearly if this policy enables people to move into their own, who otherwise wouldn’t have been able to do so, and increases housing supply by encouraging more homes to be built it can be classed as success.

Its introduction underlines the government’s commitment to increasing supply. Indeed, as we saw at the recent party conferences, we now have a widespread acceptance of the need to build more homes across the political spectrum.

This in itself should lead to more such policies that will increase housing provision. The proposals by the Conservatives of a scheme to allow first-time buyers to purchase a new build home at 80% of market value is interesting.

Whilst clearly there is a lot of detail to be agreed, if it enables more people to meet their ambition of home ownership, and brings forward land that otherwise wouldn’t have been allocated for housing, it could deliver increases in supply.

The success of Help to Buy demonstrates how policy can deliver, with house building activity up around 25% since its introduction. If we are to see further increases sustained, then politicians need to continue to work with the industry to develop policies that make a difference.

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