Build to Rent Should Feature Large in the London Housing Market if Property Developers Seize the Opportunity Offered by Government Initiatives

What is Build to Rent?

Build to Rent is a government initiative to encourage the building of more purpose-built rental properties in the UK.

Around 3.8 million households in the UK are in private rented accommodation. That’s about 16.5% of the population. There is no doubt that some people choose to rent for the flexibility it offers, or for financial reasons, or because they do not want the responsibility of owning their own property.

In recognition of the fact that private rented housing is likely to continue to be a growing part of the housing market, the government has been introducing measures to boost this sector as well as the house buying market.

  • Changes to Stamp Duty Land Tax implemented in 2011 mean that large-scale investors pay a typical 1% instead of 5% on large purchases.
  • A £1 billion fund for equity finance for house builders and developers.
  • A debt guarantee scheme to support the building of more private rented housing.

Build to Rent Funding

The Build to Rent Fund assists the new development of these purpose-built rental properties. The developer takes out the funding loan, builds the properties and then passes on the loan to a third party investor. This means less risk to the developer and avoids them having to wait to regain capital from rental payments – which could take many years.

The Government hopes that the first round of developments will provide high profile ‘show case’ developments that will be test-beds to prove the model. The theory is that this will encourage more developers to take up the Build to Rent scheme rather than the more traditional one of selling off the development piecemeal, either off-plan or on completion.

The Build to Rent Fund prospectus was launched on 20 December 2012 under the joint banner of the government and the Homes and Communities Agency, and the first 45 projects were confirmed in April 2013.  About a quarter of this housing will be in London, and in total are projected to support the construction of between 8,000 and 10,000 new private-rented homes.

Debt Guarantees for Developers

The private rented sector housing guarantee scheme provides a direct government guarantee on the debt property developers incur when investing in new privately rented homes.

The Government thinking is that by reducing the property developer’s borrowing costs it should increase the number of homes they can afford to provide.

The government application process for direct guarantees focusses on applications that comply with the government scheme rules. Developers are expected to demonstrate a robust rental demand with a viable exit strategy, a solid management structure, and suitable asset cover,

If you are developer who is interested in the scheme you can find out more on the Homes and Communities website http://www.homesandcommunities.co.uk/ourwork/private-rented-sector or email housingguarantees@communities.gsi.gov.uk to discuss a specific proposal.

Private Rented Sector Taskforce

There is an expert panel to oversee the scheme. The Private Rented Sector Taskforce consists of developers, management bodies and institutional investors, who aim to support the expansion of the build to let sector.

The Taskforce is headed by Andrew Stanford, who is the former Head of Cluttons Residential was MD and founder of property and asset management company Stanford Mallinson.

Other Taskforce members are:

Julian D’Arcy of Kirkby Capital, a former regional chairman and proprietary partner at Knight Frank

Joanna Embling, a property consultant and chartered surveyor, specialising in urban redevelopment and a former equity partner at Cushman Wakefield

Tracey Hartley, a specialist asset manager for large scale residential landlord Grainger plc

Dominic Martin, senior analyst at EC Harris and a qualified surveyor

So 2014 could be an interesting place for property developers who are willing to embrace the scheme. For advice on property investment and the rental market please get in touch with Riley Marshall on 0207 394 1160.

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Housing Developers Needed as Property Demand Swells in the UK

Help to Buy Numbers Treble

According to a report from RICS (Royal Institute for Chartered Surveyors) the Help to Buy numbers trebled in the last two months of 2013, so will demand outstrip supply in the UK this year?

A report by the NAEA (National Association of Estate Agents) following their recent member’s survey states that during November its members sold an average of nine homes per estate agency branch, and on average two of those were Help to Buy purchasers.

The Help to Buy initiative launched at the beginning of October 2013 and we dealt with the different Government housing market schemes in our earlier blog post.

Nationally more than 2000 people took advantage of Help to Buy in the first month after launch – by December that figure nearly tripled to 6000. These new mortgages will equate to around £1 billion of new lending to homeowners who may have been deterred or prevented from borrowing because of the need for a lump sum for their deposit before a mortgage company will lend money.

David Cameron Comments on the Increased Demand for Housing

Prime Minister David Cameron hopes many more people will be persuaded to get on the property ladder in the New Year, giving the property market and the wider economy a welcome boost

RBS, HSBC, Lloyd’s, Virgin Money and Aldermore are already offering these mortgages but they will soon be joined by Barclay’s and Santander who plan to introduce their own Help to Buy products this month.

The property market will no doubt continue to heat up as we head towards one of the busiest times of year and Cameron observes:

“. . . too many people have found themselves frozen out of the market in recent years as a result of the size of the deposit required.

That is why as part of our long-term economic plan we introduced the Help to Buy scheme, so hard-working people with sufficient earnings can get on, fulfil their aspirations and enjoy the security of owning their own home.”

UK Economic Growth Relies on a Booming Property Market

The UK economy is so dependent on a raising property market that the Government is always under pressure to find ways to keep the figures rising upwards, but if the market gets too hot it could cause a bubble that would be very painful for our recovering economy if it should burst.

RICS senior economist Josh Miller warns:

“The pace of demand is exceeding that of supply in every part of the country. Clearly the momentum in the market is growing. Help to Buy, funding for lending, and the clear commitment to keep interest rates low for a long time, all three are having an effect.”

Build More Housing to Stabilise Economic Growth

The best way to stabilise the market is to increase supply so that it tracks this increased demand. Providing that buyers can afford to purchase we are unlikely to ever have a situation where available housing stock outstrips demand in London. Therefore building more housing is the answer to increased, gradual and sustainable economic growth in the Capital.

The Shadow Housing Minister Emma Reynolds comments that:

“Any help for first-time buyers struggling to get on the property ladder is to be welcomed.

But rising demand for housing must be matched with rising supply if this scheme is to bring the cost of housing within the reach of low and middle income earners.”

It is certainly true that without a reliable release of new more affordable housing onto the market that the housing ‘bubble’ will stall and even burst, if house prices rise sharply in response to this increased demand. This could spell economic disaster for all of us.