News story

Next steps for £10 billion housing guarantees

The government sets out the rules for 2 new schemes that will help investors to provide new homes for rent.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Row of new houses.

The government is setting out how 2 new schemes will put up to £10 billion of lending guarantees to work so investors can expand the private rented sector and build new affordable homes, Chief Secretary Danny Alexander and Housing Minister Mark Prisk announced today (1 February 2013).

The ministers are publishing further detail on 2 guarantee schemes that will use the government’s hard-earned 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 2012 to kick-start private investment in the housing sector, which will create thousands of new homes and jobs, boosting growth across the country.

Following extensive consultation with the housing sector, the government is setting out eligibility requirements and how the guarantees will be structured, in the scheme rules for affordable housing and the scheme rules for private rented housing. It is also publishing an invitation to tender for the running of the schemes.

The guarantees will support new-build projects, 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 any part of the UK that have a minimum value of £10 million. The new homes will have to remain in the private rented sector until the money is paid back.

A separate scheme will be available to support new affordable housing projects, unlocking development for up to 15,000 new homes, on top of the government’s existing house-building programmes.

Untapped potential in the private rented market

Building homes specifically for private rent is a relatively immature market in the UK compared with other countries, which has meant that investors and lenders can be cautious about supporting new-build projects.

Under this new approach, the government will reduce risk for lenders by guaranteeing to repay the money in the event of default from borrowers. This should 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.

Boosting affordable housing

At the same time a guarantee will be available for affordable housing projects. This will be complemented by £225 million of grant funding, for registered housing providers in England to deliver up to 15,000 new homes for affordable rent or affordable home ownership.

Chief Secretary, Danny Alexander said:

“The announcement today shows we’re getting on with delivering an ambitious guarantee programme, giving projects across the UK a unique opportunity to take advantage of the strength of the UK’s balance sheet, allowing businesses and homeowners to benefit from lower borrowing costs and more affordable housing.

“We must build on this momentum to boost vital investment in the housing sector, creating jobs, supporting small businesses and building the foundations for growth across the country.”

Housing Minister Mark Prisk said:

“We’re introducing groundbreaking 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.

Further information

The scheme will function alongside the build to rent fund and the Private Rented Sector Taskforce and will use the government’s fiscal credibility to reduce the cost of borrowing for housing providers, while attracting investment from fixed income investors seeking a stable, long-term return on their investment without exposure to residential rental property risk.

The guarantees will only support projects that will deliver additional new-build private rented or affordable homes.

The government sought interest and input from organisations with the experience to help deliver the scheme on 6 December 2012.

Following engagement with the market in response to this, the government is today publishing the scheme rules for the guarantees for both affordable housing and private rented housing and has submitted its Official Journal of the European Union (OJEU) contract notice for the administration of the schemes.

Separate bidding documents will be available in due course for the £225 million grant funding for affordable homes in England.

Published 1 February 2013