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New Funding for Landlords and Housing Associations

A government scheme, aimed at helping young people save and move up the property ladder, will involve offering £400 million in low cost loans to landlords and housing associations. Information about the scheme was recently published in a press release by the Department for Communities and Local Government.

Overview of the Funding Agreement

Eric Pickles, the Secretary of State for Communities and Local Government, has announced that under the new scheme, providers can bid for a share of the funding, which will mostly be used to build 1-2 bedroom apartments. In exchange for the low cost borrowing at a fixed rate, as low as 1% for 8 years, landlords must make the homes available at no more than 80% of market rent for between 7-16 years being the duration of the loan. Simply put, the government is offering below market loans, in exchange for below market rents to your tenants. With talk of interest rate hikes not too far away, the borrowing rates look to be highly competitive.

The funding pool will be split, with £200 million for London and £200 million for the rest of England. After the loan has been paid off, the tenant will have first refusal to buy the property when you come to sell it. If the home is sold, you will keep any returns on the investment, and can use these to then expand should you choose to.

Why is the Government Involved?

The loans are designed to speed up the home building process so that young people can rent and save at the same time. This way they can move up the property ladder by using the low rents as a springboard. It's about matching supply to demand.

Whilst an increase in supply will tend to mean that property prices and rents are pushed down, the borrowing scheme can be seen as an opportunity. It may seem that there are a some 'strings attached' in terms of rules for how the properties must be rented out. But to match this, the number of first time buyers is at its highest rate since 2007, which is why the government has moved to assist landlords in addressing this market.

Lyndon Campbell from SM Commercial, commented on the possible legal implications for interested landlords and housing associations, "The scheme is designed for building new properties before renting them out, which sets it apart from similar schemes. While this makes it a powerful opportunity for many landlords and housing associations, there will be several hoops to jump through; from securing and finalising funding, to development, and finally renting the properties out."


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Dated: 07/10/2014

Author: Greg Cox



Landlord - Residential Letting Contract


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