Home ownership remains an important aspiration among the general public in the UK but is it a realistic one? Anecdotally, the answer to this probably varies depending on who you ask and their own personal experience. However, studies still show that the vast majority of people want to own their home and a major focus of the current housing crisis should not just be about total supply to meet demand but how the policy environment needs to change to support the aspiration of ownership.
The latest research from the Council of Mortgages Lenders’ long-running series on attitudes to housing tenure supports this as it confirms that home-ownership remains important to people and 72% of adults want to be home-owners in two years’ time with this rising to 80% within a decade.
The research also found that the majority of people – regardless of their own circumstances – feel it is harder than ever for young people to buy their own home. So while clearly the desire is there to buy a property, it is apparent there is still not enough being done in terms of creating achievable options.
Rentplus recently held a breakfast briefing with MPs and policy researchers to discuss our rent-to-buy model and how more options are required which allow people to more easily to bridge the gap between home-ownership aspiration and reality. It was fascinating to hear from the attendees how the different drivers of the housing supply chain – be it local authorities, developers or housing associations – had varying challenges in their regions in terms of delivering affordable homes.
While we don’t consider Rentplus to be a panacea to the housing crisis, we can make a positive and constructive contribution to the housing delivery supply chain as well as providing opportunities for people trapped in unsuitable housing to access secure affordable housing with the opportunity to buy their home in the future with a 10% gifted deposit from Rentplus.
We are a complementary housing tenure which provides an alternative route to home ownership for people who are otherwise unable to get onto the housing ladder. However, we know that there is no “one size fits all” solution, and instead we need a range of options and tenures to suit the needs and circumstances of the UK population at large. New thinking, new policy not just new homes are needed if we are to address the housing crisis once and for all, and enable people to achieve their dream of owning bricks and mortar. We were delighted with the engagement during and after the meeting with the MPs and hope to continue to demonstrate how our model will bring home ownership that bit closer to reality for many more people.
Richard Connolly
CEO Rentplus
We agree with the Chancellor’s comments about the effect of unaffordable housing on productivity and delivery of much needed housing and his acknowledgement that “for too many, the goal of home ownership remains out of reach.” His announcement of a range of new measures to address these issues is most welcome and marks a step-change in housing policy. The introduction of the new Housing Infrastructure Fund and the NPIF will undoubtedly be a significant and spur to accelerate the delivery of new affordable homes, unlocking innovation in the housing sector and delivering new affordable housing in high demand areas. In London, the increase in funding for the GLA to deliver 90,000 new affordable home starts by 2020 will be essential in ensuring it’s still possible for those on lower incomes to continue to live in the Capital. We hope that rent to buy homes will be included in this pipeline.
“We are delighted that the Government recognises the importance of creating mixed tenure developments providing more homes of every type and addressing the affordability gap. Rent to buy models, like Rentplus, are designed for working families who are just about managing, making a real difference to the quality of their lives now as well as their future aspirations. It’s good to see that the government has taken a wider view of affordability – the support the Chancellor has provided through the changes to Universal Credit should make it easier for families to stay in work and progress up the career ladder, afford child care costs and save for a deposit to buy their own home. The extension of the Help to Buy ISA is good to see as this will encourage the nation to get in the saving habit and enable Rentplus tenants to save to top up the deposit we give them when they buy their home.
“With average house prices more than 9 times median incomes in 39 per cent of local authorities, we need to do something different to enable those who can reach their goal of home ownership. While the additional 40,000 new affordable homes announced will help, they won’t be enough to counter this trend. We are looking forward to the government’s Housing White Paper and the details of how these new initiatives will be delivered; we also hope that Rent to Buy models will be recognised as a mainstream housing product both as a Starter Home and truly affordable housing alongside traditional options. This would enable local authorities to boost their supply of affordable homes to rent whilst providing a complementary housing solution for those who aspire to own their own home without an increase in Government spending.”
After 7 years stuck in the private rental sector in Stoke in Plymouth, the Rafiq family finally have a home to call their own. Muhammad Rafiq, a 46 year old engineer at an aerospace firm, together with his wife Maria, a 36 year old stay at home mother, have recently moved into their Rentplus home – a two bedroom house located at Persimmon’s Palmerston Heights part of the new Seaton Neighbourhood development in Plymouth. Before moving into their new home, the Rafiq’s found it impossible to save for a deposit as more than 25% of their monthly income was eaten up by rent each month. The Rafiq’s are not alone – saving for a deposit continues to be one of the biggest obstacles to home ownership. Recent figures from Shelter reveal that 86% of people say they would like to own their home, but 75% of renters are unable to save more than £100 a month towards a deposit.
Through Rentplus’ unique model, the Rafiq’s will have the opportunity to buy their home in just five years, in the meantime benefiting from an affordable intermediate rent set at the Local Housing Allowance (LHA) level plus no maintenance costs or service charges to pay while they rent; and when it comes time to buy their home, Rentplus will gift them a 10% deposit towards their purchase! When Mr Rafiq found out about Rentplus’ innovative rent-to-buy model he couldn’t believe his luck. He comments: “Our dream has long been to own our own home but with the high costs of renting combined with the need to save thousands of pounds for a deposit it’s never been in reach for us. This model is ideal for our needs as we have the certainty of living in the home which we will one day own and the reduction in rent is making a huge difference to our lives. Owning your own home is one of the greatest things in life – knowing that we won’t have to move again because of rising rents or at a landlord’s discretion ensures that we can plan ahead and establish real roots in the local community. We love living in Plymouth – our daughter attends a local nursery and both the sea and local countryside are on our doorstep. Our quality of life has vastly improved.”
The Rafiq family have set a goal of purchasing their two bedroom home in 5 years. Their new rental costs mean that they have the potential to save up to £200 a month versus market rent for a similar property in the area and they plan to make additional savings too. These savings can be put towards their deposit and other purchase costs in addition to the 10% gifted deposit from Rentplus.
The Rentplus rent-to-buy model offers five year renewable tenancies at an affordable intermediate rent, set at 80% of market rent, or at LHA level depending which is lower. Tenants are given the opportunity to purchase their property at year 5, 10, 15 or 20 and are eligible for a 10% gifted deposit from Rentplus to aid their mortgage application. The tenants’ monthly rent includes service charges, and with no maintenance responsibilities, occupants have time to save for a deposit and build a credit history that will support their mortgage applications.
Richard Connolly, CEO at Rentplus, comments: “Rentplus was set up to help hardworking people, who couldn’t otherwise get on to the property ladder, own their own home. Our model also increases the number of affordable homes in an area, freeing up local authority waiting lists and housing budgets. With such a severe shortage of homes, it is vital that we look at new housing solutions to help hard working families like the Rafiq’s. Our model shows that through greater collaboration, we can bring more homes to the market and extend the opportunity of homeownership to more people than ever before. ”
Palmerston Heights is home to 19 brand new two, three and four bedroom Rentplus homes built by Persimmon in partnership with local housing association Tamar Housing and Plymouth City Council. All properties are specified to the highest standards and include stylish kitchens, bathrooms and private gardens. Around 30% of the Palmerston Heights homes were allocated to households currently living in social housing which freed up much needed homes for families in priority housing need.
Rentplus have a pipeline of over 8,500 homes across the country, we currently have two active sites in Plymouth and have completed homes at Lechlade, Gloucester, Sherbourne and Palmerston Heights Plymouth.
Latest ONS house price index shows property prices jumping by an average of £3,000 month-on-month. That’s more than the monthly salary for a lot of aspirational home buyers. With house prices rising at this pace, deposit sizes are also increasing. Research from the CEBR suggests that the average first-time buyer now needs to save £48,198 for their deposit, a 117% increase on 10 years ago. Saving for a deposit currently remains the biggest barrier to home ownership in the UK.
The hurdles first-time buyers have to jump over to save for this deposit are also getting higher. The ONS states that rents have risen by an average 2.3% over the last year, effectively cancelling out the 1.8% growth in average annual earnings. Fuel bills, another major expense for most tenants, are also increasing by about £80 a year. With this uplift in the cost of living, half of renters can’t afford to save any income each month and a further 16% can’t save more than £50 per month. Even if renters can afford to put a little money away each month, low interest rates mean they’re unlikely to get a decent return, with average easy access savings accounts offering just 0.5% interest.
The government is trying to help, with Theresa May stating that tackling the housing crisis is one of her top priorities. They are still committed to building a million new homes by 2020 to increase the housing supply and control house price growth; the recent softening of language around needing a range of affordable tenures is very welcome. They’ve also offered a series of schemes to help first-time buyers, including starter homes and a range of affordable home ownership schemes. But this won’t be enough to take on the full challenge. The private sector has to do more to help. This is why we designed our model to help people locked out of home ownership, particularly those who are struggling to save for a deposit.
We aim to provide an alternative route to home ownership by offering affordable rents at 80% of the market rate to help our tenants save. We also provide a gifted deposit of 10% of the property’s value when our tenants buy their home to make it easier for them to afford their dream of home ownership.
While our scheme will help increase home ownership, its only part of the solution. If we really want to see an uplift in the number of people able to get on the property ladder, greater co-operation between the government, local authorities and the housebuilders is essential. Widening the definition of ‘starter homes’ to include affordable rent-to-buy models like ours would be an excellent first-step. This would allow us to increase and accelerate the supply of affordable housing we could provide. This could help the private sector institutional investors to fund more alternative routes to homeownership, now that the traditional path for aspirational home owners is too steep for many.
Richard Connolly, CEO of Rentplus
The first noticeable change we saw was the new tone in Housing Minister, Gavin Barwell’s speech to the RESI conference in South Wales. In his first major speech since his appointment, Barwell hinted at a shift in the Starter Homes policy, saying he wanted to focus on all tenures – not just homeownership.
At the National Housing Conference in Birmingham, Mr Barwell went further saying: “Some of you have said to me that you’d welcome the flexibility to bid for a wider mix of affordable housing. We’re happy to look at that – we remain committed to helping people onto the housing ladder, but not at the expense of reducing the number of homes our programme delivers.” Inside Housing also revealed the government is considering broadening its Starter Homes policy to include rent-to-buy homes. Cleary, Mr Barwell has been listening to the concerns of affordable home providers and the representations made by Rentplus; as a result the government is showing much greater understanding of the need for mixed tenure developments.
Further endorsement came at the Conservative Party conference. Theresa May, in her first conference speech as Prime Minister recognised the need for more affordable housing, arguing that, “High housing costs – and the growing gap between those on the property ladder and those who are not – lie at the heart of falling social mobility, falling savings and low productivity.” This chimes with the case we’ve been making. Through the inclusion of Rentplus affordable rent-to-buy homes in new developments, low paid households can afford to live in their local area investing their hard-earned income in the local economy supporting the regeneration of town centres and vibrant communities . Now it seems we are all moving in the same direction.
In order to tackle the country’s housing challenge, the government reiterated its previous commitment to building 1 million new homes by 2020. With research showing that David Cameron built the fewest homes of any Prime Minister since 1923, they’ve sensibly admitted that they haven’t done enough. We welcome Philip Hammond and Sajid Javid’s £5 billion stimulus for housebuilders as a way of stepping up construction, collectively, their new initiatives are expected to deliver 40,000 homes by the end of this parliament. However, more innovation is needed if we are to deliver 1 million homes; we cannot continue doing what we have always done!
Housing models which bring institutional investment through new entrants to affordable housing should also be an important part of the new housing market the government is seeking to build. The existing affordable housing sector cannot meet the demand alone. Partnerships between the private and public sectors work well and we believe that bridging the gap between affordable housing and private funding is a very real part of the solution to the UK’s housing crisis.
We now eagerly await the Autumn Statement and the government’s new housing white paper, due to be published later this year containing “further significant measures” to facilitate the delivery of the target 1 million new homes by 2020.
Richard Connolly, CEO of Rentplus
The Commission’s finding on the subject also investigate the importance of considering housing in a wider context, where it is also relevant to consider the creation of prosperous places, how housing can be crucial in boosting employment levels, and also how best to support an ageing population.
To build more homes, the LGA’s Commission recommends giving councils more power to bridge the gap between housing needs and future building levels in their area. This would require the Government to provide national backing for new local government and joint housing delivery models. While it’s predictable that an association which represents councils would call for them to have more power, when it comes to housing, it’s worth considering any suggestion which could improve the delivery of affordable homes. While the Government’s own major housing policy should significantly accelerate the delivery of homes, given the scale of the housing crisis, shouldn’t other ideas to boost the supply of mixed tenure developments also be examined?
The LGA Commission’s recommendations would enable councils to adopt and test new innovative models in their area. With current models for providing housing under strain, innovation will be essential to improving housing supply. Would it be a good idea to let councils experiment and innovate in their own communities? The Government could then incorporate the successful schemes into national policy. This may allow housing policy to be more effective at providing mixed tenure communities to support local needs.
To unlock more innovation in local government, the Commission argues that councils should be given more control over the private developer market. The LGA correctly states the private sector isn’t building enough homes, especially affordable homes, despite being granted planning permission. They provide recommendations to unblock stalled sites to boost construction and slash housing waiting lists. Leaving these sites empty or underdeveloped doesn’t benefit anyone and ensures it is harder for councils to plan future building levels. These proposals raise a few questions. Would councils be in a better position to track the progress of local building? Or should the bigger picture be considered? Perhaps a developer may need to focus their resources on other areas of the country, which different councils may not appreciate?
The LGA believes that if councils are given more control, they will be able to shape the diversity of homes built, with the Commission understanding the value of providing a mix of affordable housing options for local communities. Many areas might benefit more from an increase of affordable homes to rent than starter homes for example. Housing policy needs to be able to adapt to different economic conditions to meet local needs effectively.
However, it’s unlikely that the Government will want to give local authorities complete free reign when it comes to housing policy. There does still need to be central control over housing delivery to ensure that enough homes are built across the country. The Government’s resources, when used at scale, can create much greater incentives to encourage development compared to local authorities. Without any national oversight, local authorities are also more likely to be influenced by Nimbyism.
Thankfully, there is a compromise which would give more autonomy to local authorities, while still allowing the Government to retain overall control of housing policy. If the Government amended the planning policy and provisions within the Housing and Planning Act, this would allow more flexibility for local authorities, while ensuring they operated within a national framework. For example, if the Government broadened the definition of starter homes to include models like Rentplus, this would empower councils to increase the delivery affordable rented homes when they’re needed more than homes for first-time buyers. This would enable local authorities to create more mixed tenure development which are appropriate for their communities.
While there is no single solution to the housing crisis which will work in everywhere, giving councils the ability to create more mixed tenure developments to support local needs – without forcing the Government to lessen its control over housing policy – would significantly help accelerate the development of affordable housing.
Richard Connolly, CEO of Rentplus
The UK’s decades-old housing crisis is one of those emotive issues new governments tend to pronounce on at the start of their period in office. We have just seen this happen again with the announcements from Chancellor Philip Hammond and Communities Secretary Sajid Javid, with Prime Minister Theresa May pledging to repair ‘the dysfunctional housing market’. It is encouraging to see this level of commitment and, with research showing that David Cameron built the fewest homes of any Prime Minister since 1923, we now urgently need to see these policies drive change.
In order to create a resilient and inclusive housing market which creates strong, functioning communities it is vital that the process of accelerating housebuilding benefits from an injection of innovation – and this requires a fundamental change in thinking.
In my view Housing Minister Gavin Barwell is right on track when he says we must move away from monoculture when thinking about the housing market. Local planning authorities are currently having to work to outmoded or inappropriate tenure models that are often no longer relevant. We need to move forward and embrace flexibility. The aspiration of homeownership is embedded in the British psyche, but it is not the only solution and, at a time when deposits remain the biggest barrier to people buying a home and house price growth is rampant, it would be very damaging if it were the only real choice.
Mr Barwell has recently hinted that the Shared Ownership and Affordable Homes Programme (SOAHP) will be more flexible in future and the rhetoric around Starter Homes has softened. A housing market which welcomes mixed tenure developments is desperately needed. For example, affordable rent-to-buy provides a much-needed all-embracing model for people who cannot afford to buy today, but will be able to in future, if given half a chance to save to buy their home. Rent-to-buy should be widely available across the country as a mainstream tenure. Communities comprising people with a range of skillsets and from a range of backgrounds are the most successful – and particularly when those people have a secure housing option that suits their needs. The apparent shift toward a flexible tenure approach is very welcome and to create the housing market we so desperately need it is vital that this crystalizes into clear action.
Housing models which bring institutional investment through new entrants to affordable housing should also be an important part of the new housing market the government is seeking to build. The existing affordable housing sector cannot meet the demand alone. We need to build on the excellent work local authorities and housing associations have already done. Partnerships between the private and public sectors work well and we believe that bridging the gap between affordable housing and private funding is a very real part of the solution to the UK’s housing crisis.
We hope the housing crisis will start to ease following the government’s commitment to accelerate housebuilding, but it should not miss the opportunity to widen its thinking about how we solve this most divisive of issues.
The multi-million-pound development headed by city-based Rentplus, has financial backing from private and institutional investors. Rentplus is creating a “step-change in the delivery of affordable housing” nationally with its new model.
Under the Rentplus model, at the end of a rental agreements, tenants have the opportunity to purchase their property and receive a ten per cent gifted deposit from Rentplus to help their mortgage application.
“The Rentplus homes will be managed by Tamar Housing Society and let to tenants at affordable rents capped to the local housing allowance for a minimum of five-years with the opportunity to purchase in the future with the assistance of a 10 per cent gifted deposit.”
Despite the recent government policy changes, intergenerational inequality still means people in their thirties will be looking at the generation above believing they have been hoodwinked out of numerous benefits their parents enjoyed, including higher levels of home ownership, lower living costs and access to the most generous pension schemes
The housing supply crisis in the UK is particularly severe and is feeding a lack of housing affordability. With the UK population growing and demand for homes on the up, we urgently need to address this issue with innovative housing solutions, such as rent-to-buy models backed by institutional investment, which unite the public and private sectors and address the housing crisis at no additional cost to the public purse.
If we are to start to close the intergenerational wealth gap and address issues of housing supply and affordability we need the government to stay on course and deliver a housing strategy with a range of solutions to suit the needs of as many people as possible. Immediate home ownership is not an affordable or feasible option for everyone and only by working together can we find acceptable solutions to the housing crisis.
This week is an extremely important one for the team at Rentplus. We have received a significant new injection of funding which will help us expand our delivery of affordable rent-to-buy homes across the UK.
The investment has come via a delivery finance facility from Crestline Investors, a credit-focused institutional alternative asset management firm. We have agreed to initial funding of £20 million, available to be drawn down over the next two years, with an option for a further £20 million.
This adds to the £70 million of investment already secured from BAE Systems Pension Funds Investment Management earlier this year.
The Crestline Investors funding will be used to accelerate the delivery of affordable housing across the UK. We are already in contract to deliver homes in Cambridgeshire, Gloucestershire, Oxfordshire, Essex, Suffolk, Northants, Devon, Somerset, South Hams, Sedgemoor, Plymouth and Bicester by March next year. Our homes will generate significant inward investment for communities and provide much needed affordable homes to residents in these areas. The arrival of Rentplus homes reduces local authority waiting lists and allows tenants to set down roots and make real contributions to their communities because they are able to rent and then buy their home. Rentplus facilitates this migration to home ownership whilst providing security of tenure during the rental period.
As house prices continue to rise and deposits remain a barrier to home ownership, we are seeing significant interest from potential tenants, housing associations and local authorities who want Rentplus homes in their area.
This fresh funding is evidence of the belief in both our business model and our ability to deliver new, affordable homes, providing an alternative route to home ownership. With this additional funding, we remain confident that we will meet or exceed our goal of 5,000 new homes by 2020, providing part of the solution to the UK’s housing crisis.
Richard Connolly, CEO of Rentplus