£10 billion Government guarantee to help Private Rented Sector housing
February 4, 2013
The government sets out the rules for 2 new schemes that will help investors to provide new homes for the Private Rented Sector.
The government is setting out how 2 new schemes will put up to £10 billion of lending guarantees to help expand the Private Rented Sector and build new affordable homes.
Chief Secretary Danny Alexander and Housing Minister Mark Prisk will be publishing further detail on 2 guarantee schemes that will use the government’s fiscal credibility to provide property investors with low-cost finance so they can deliver new private rented or affordable housing.
The guarantees were announced in September last year to try and kick-start private investment in the housing sector in the hopes that it would create thousands of much needed homes and jobs.
Following extensive consultation with the housing sector, the government will be setting out the scheme rules for the Private Rented Sector in regards to eligibility requirements and the schemes structure. There will also be an invitation to tender for the running of the schemes.
The guarantees will be there to support new-build projects that are located in the United Kingdom. The Private Rented Sector guarantee will back a variety of options to invest in new homes for private rent, from building new homes to converting existing commercial spaces into rental properties.
This will make vital finance available for projects in the UK – that have a minimum value of £10 million – to create new homes that will have to remain in the private rented sector until the money is paid back.
Untapped potential in the private rented market
When compared with other countries the building of properties specifically for the Private Rented Sector is a relatively immature market in the UK. This has led to investors and lenders being cautious about supporting new-build projects but this new scheme will attempt to reduce risk for lenders by guaranteeing to repay the money in the event of default from borrowers. This will hopefully enable housing providers to borrow at well below current rates, and therefore encourage more investment in the private rented market whilst ensuring checks are in place to protect taxpayers money.
Housing Minister Mark Prisk said:
“We’re introducing ground breaking measures to unlock the vast, untapped potential for growth in the Private Rented Sector. Investors will now be able to draw upon low-cost lending so they can bring thousands of new homes into the market.
The housing guarantee schemes will help to get spades in the ground, create jobs, and establish new business models that will ensure the private rented sector continues to grow and more affordable homes are delivered.“
The guarantees will support investors in a variety of ways. For example:
- An investor wants to build a block of 100 flats that they will then offer for private rent. The value of the built flats will be £20 million. They can apply to the guarantee scheme for up to £16 million, or 80% of the end value.
- To qualify, the homes must not yet have started on site, be well-designed and commercially viable with a plan for rental management, and meet the scheme’s stated criteria. If the application is successful and the scheme goes ahead as planned, the government will guarantee their debt until it is repaid.
Young Group will keep an eye on news about the scheme though we are happy that the Government is looking to improve the availability of quality properties within the Private Rented Sector.