Thoughts on what a new government should do, and what it should stop doing: a pre-election Rentplus blog

Jun 26, 2024
The three main parties have made commitments to support first-time buyers, including pledging to extend the mortgage guarantee scheme, which had been due to end in June 2025.

Labour has said it would make it permanent and is renaming it ‘Freedom to Buy’. The concept is likely to be the same: first-time buyers can benefit from a 95% loan-to-value mortgage and the scheme guarantees that the Government will shoulder some of the cost if the lender loses money, for example if the home is repossessed. It essentially encourages lenders to offer more 5% deposit mortgages, giving buyers better choice.

That the parties have recognised that saving for a deposit is the main barrier to home ownership is a welcome start. The Halifax estimates that the average first-time buyer deposit is now over £53,000. With the average annual earnings for full-time employees £35,000, this is a substantial amount of money to find. The mortgage guarantee is therefore welcome to lower the deposit threshold: but it will not address the challenge that almost half of private renters have no savings at all. With rents continuing to rise above inflation, it is increasingly difficult for renters to save even a small amount after their other outgoings.

As noted by the Money Savings Expert Martin Lewis, the other factor to bear in mind with a 95% mortgage is that mortgage rates tend to be much higher if you’ve got a deposit of less than 10% – adding up to significant additional interest repayments over time.

How, then, to address the savings challenge?

Shared Ownership had been heralded as the key to making buying a home more accessible by enabling tenants to purchase their home in increments. Earlier this year, however, MPs on the Levelling Up, Housing and Communities select committee concluded that it is not as good as it seems, warning: “shared ownership schemes are drastically failing to deliver an affordable route to homeownership for too many people and subject buyers to rising rents, uncapped service charges, and a disproportionate exposure to repair and maintenance costs”.

In light of these findings, it is nonsensical, and a huge waste of public money, that nearly half of the Government’s £11.5bn Affordable Homes Programme will go towards funding Shared Ownership homes.

Rent to buy schemes, on the other hand, address both the deposit barrier and concerns over uncapped additional costs. Renters move into a brand-new home without paying any upfront deposit and receive all the same benefits as with any other affordable homes to rent. They pay a below market rent (80% of market rent or Local Housing Allowance, whichever is lower) and can then put the amount they are saving compared with renting privately towards a deposit. All service charges are included within the below market rent and, as a tenant, they are not responsible for any repair and maintenance costs, meaning no unexpected charges.

As a leading affordable rent to buy provider, under the Rentplus scheme, tenants can buy at year 5, 10, 15 or 20. When they do so, we provide a 10% gifted sum to add to their savings. This enables them to get a mortgage with at least a 90% loan to value ratio (but often better) – meaning they get a full range of high street mortgage options. The model is now proven with tenants buying 100% of the home they lived in, rather than being trapped in a part-rent, part-buy limbo like under shared ownership. Our first renters who moved in with no deposit in 2016, became homeowners in 2021; as at the end of 2023, 95% of our renters became homeowners at the proscribed time.

There are a growing number of providers offering rent to buy schemes but the Lib Dems were the only party to commit to rolling out rent to buy in their manifesto. Cllr Joe Harris, the Leader of the LGA Lib Dem group, has previously commented that rent to buy is much fairer than shared ownership in delivering the aspiration to own and that he is a “great fan” of the model. Affordable rent to buy schemes are turning renters into homeowners across the country but are much less well known than other routes onto the housing ladder. In part this is due to previous governments’ promotion of shared ownership above other tenures. We would urge the next government to promote it as an option for home ownership alongside other schemes.

Funding also needs to be considered. Both Labour and the Conservatives have lofty building ambitions: Starmer aims to build 1.5 million new homes over the next Parliament; Sunak 1.6 million. This equates to building 300,000 or 320,000 new homes a year; however the highest level of completions over the last few years has been 210,000 – some way off. The British Property Federation (BPF) estimates that £10bn of institutional capital is needed on top of grants and public sector funding to deliver the level of new affordable homes needed.

As the BPF says: “Pension funds and other sources of institutional capital are attracted to [the affordable housing sector] as it offers secure long-term income but the next Government must do more to give them the confidence to invest.” Despite figures like the Chair of Homes England outlining the Agency’s desire to see more institutional investment in affordable homes, our experience on the ground is that local authorities are often reluctant to stray away from the norm of grant funding.

To deliver the volume of new housing required, and the increase in home ownership desired, we must do things differently. Rentplus believes the next government should give a clear directive to local authorities to consider affordable housing funded through institutional investment.

We are also calling on the incoming government to establish an independent website setting out all the home ownership options available to aspiring buyers with illustrative future repayment so our aspirant homeowners can make an informed decision about the best route for them. It will also demonstrate which provides the best value for money for the taxpayer.

June 2024

Back to top

This site uses cookies to improve your experience.

We use cookies to personalise content and to analyse our traffic. We also share information about your use of our site with our analytics partners. View our cookies page.

Cookie Preferences

  • How much does a website cost?


    These cookies allow the website to remember choices you make and provide enhanced, more personal features. The information these cookies collect may be anonymized and they cannot track your browsing activity on other websites.

  • Optional cookies

    We'd like to set Analytics cookies to help us to improve our website by collecting and reporting information on how you use it. For more information on how these cookies work please see our cookies policy. The cookies collect information in an anonymous form.