2. Rent to Buy
This chapter sets out the requirements and procedures which must be followed when developing affordable housing as Rent to Buy.
1.1 Purpose
1.1.1 This chapter sets out the requirements and procedures which must be followed when developing affordable housing as Rent to Buy.
1.1.2 This chapter does not reflect all elements of general programme requirements and should be read in conjunction with the other chapters of the Capital Funding Guide (CFG).
1.2 Context
1.2.1 Rent to Buy is a scheme which allows working households to rent a home at Intermediate Rent providing them the opportunity to save for a deposit over time to purchase their first home.
1.2.2 Unless otherwise stated the policies, requirements and procedures of the Shared Ownership and Affordable Homes Programme (SOAHP) 2016 to 2021 or Affordable Homes Programme (AHP) 2021 to 2026 should be applied to the provision of Rent to Buy homes. This section should therefore be read within the context of the other chapters of the CFG and Homes England’s SOAHP 2016 to 2021 Prospectus and AHP 2021 to 2026 funding guidance.
1.3 Main features of the scheme
1.3.1 Organisations must be Registered Providers with the Regulator of Social Housing to own and / or manage Rent to Buy homes.
1.3.2 Registered Providers delivering Rent to Buy will be expected to let the homes to working households who are looking to buy a home but are not able to save for a deposit.
1.3.3 The homes will be let at an Intermediate Rent (see Section 2.2 below) for a minimum of five years during which it is expected that tenants will save for the deposit to purchase their home.
1.3.4 After the initial five year letting period the provider may continue offering the property as Rent to Buy; sell the home on an outright basis with the tenant being given the right of first refusal; or retain and convert the home as rented housing on either an affordable or market rent basis.
1.3.5 Where appropriate, the normal grant recovery obligations will apply (see the Grant Recovery chapter)
1.3.6 A tenant can also purchase their property within the five years rental period but at the discretion of the provider. A purchase under Shared Ownership is permitted as it remains as affordable housing. Tenants must meet all the shared ownership eligibility, affordability and sustainability requirements.
1.4 Applicant eligibility
1.4.1 Rent to Buy homes are not subject to local authority nominations although landlords may choose to work with the local authority to identify potential tenants. There are no local or other prioritisation criteria to be applied to the Rent to Buy product, other than on rural exception sites.
1.4.2 Rent to Buy tenants must be working households and intending to buy their own home in the future at time of letting. Whilst this should be the intention at the outset household circumstances can change over time such that this may not be possible. In such cases then the options to providers as set out in paragraph 1.3.4 (above) apply.
1.4.3 To be eligible for Rent to Buy tenants must be first time buyers having not previously owned their own home. An exception to this is where an applicant is looking to return to home ownership following a relationship breakdown.
1.4.4 There are no local or other prioritisation criteria to be applied to the Rent to Buy product, other than on rural exception sites. On such sites the priority for allocations will be set out in the section 106 agreement agreed between the local planning authority, developer and Registered Provider. This will often stipulate that priority will be given to applicants with a connection to the local area and, additionally, provide a cascade out to the subsequent areas that will be given priority. The National Planning Policy Framework provides a definition of rural exception sites as small sites used for affordable housing in perpetuity where sites would not normally be used for housing. Such sites seek to address the needs of the local community by accommodating households who are either current residents or have an existing family or employment connection.
1.4.5 Providers can offer Rent to Buy on sites where there may a restriction on outright ownership, for example 80% on rural exception sites. However, providers should take their own legal advice as to the appropriateness of offering Rent to Buy on sites where outright ownership is restricted.
2.1 General
2.1.1 Landlords are expected to let the properties on assured shorthold tenancies at an Intermediate Rent for a fixed term of less than two years. As the Rent to Buy product has been designed with home ownership in mind, the use of short term tenancies is in line with expectations of an intermediate product that is a stepping stone into home ownership within a relatively short timescale.
2.1.2 Any providers who may wish to vary the tenancy length beyond two years should discuss this with Homes England prior to bidding. This is to ensure any different proposal is commercially effective and in keeping with the requirements and aims of the Rent to Buy product.
2.1.3 If, after the initial five years of letting, the landlord wishes to sell the property the existing tenant should have the right of first refusal.
2.1.4 If at any point after the initial five years of letting the tenants submit a request to buy their home, it is expected that the landlord would agree to sell except in the most exceptional circumstances.
2.1.5 Providers may help their Rent to Buy tenants to save for a deposit. This is a business decision for providers to take, provided any savings scheme is not included within the rent. Any such scheme must not be a requirement for Rent to Buy tenants to agree to participate in and should not be included as part of the criteria for eligibility for a Rent to Buy home. Providers who wish to consider such a scheme should seek their own legal advice, in particular with regard to compliance with all relevant legislation and regulation requirements, including that of the Regulator of Social Housing and the Financial Conduct Authority.
2.2 Rents
2.2.1 Intermediate Rents are offered at a value above social rent but below market levels. They must not exceed 80% of the current market rent (inclusive of service charges). In order to provide protection and certainty for tenants, providers and funders, the maximum annual rent increase will be the Consumer Price Index plus 1%. The Consumer Price Index will be taken as at September of the previous year.
2.2.2 Local Rent Officers, Rent Assessment Committees or the Valuation Office Agency may be able to provide details of local market rents for particular types of property which may assist providers in determining local market rents.
3.1 Rent to Buy homes will be sold at market value and tenants wishing to purchase their home will need to obtain a conventional mortgage to do so. There is no additional affordability assessment required for Rent to Buy purchases, over that which may be required by the mortgage lender.
3.2 If the home is being purchased through Shared Ownership the requirements set out in the Shared Ownership chapter of this guide must be met. Any Rent to Buy homes sold on a Shared Ownership basis after 1 April 2021 should be sold on the basis of the new model of Shared Ownership introduced by Government from 1 April 2021.
3.3 The major changes to the Shared Ownership model from 1 April 2021 relate to:
- reducing the minimum initial share you can purchase from 25% to 10%
- introducing the option to staircase in 1% increments for the first 15 years
- reducing the minimum for purchasing larger shares from 10% to 5%
- introducing a 10-year period when the costs of any maintenance or repairs will be met by the landlord
- reducing the nomination period from 8 to 4 weeks if you wish to pursue a sale on the open market
3.4 Providers should note that the Voluntary Right to Buy and the Right to Shared Ownership (for Rent to Buy homes provided through the AHP 2021 to 2026) are not applicable for homes developed under Rent to Buy.
3.5. Local authorities who are providing Rent to Buy homes directly will need to seek their own legal advice on their plans for managing tenancies and nominations for any Rent to Buy homes to ensure that they satisfy themselves that they are complying with the relevant legislation.