Back in 2012, Build to Rent was a scheme launched as part of a series of initiatives by the UK Government. The ultimate aim was to increase the number of homes available to rent in the private sector. After all, we are told there simply are not enough properties to go around. The rental sector has been showing a clear increase in popularity, with no signs of slowing down. Back in 2015, law firm Addleshaw Goddard suggested Britain was facing a ‘rental revolution’. The massive investment of approximately £30bn towards building new rental properties further solidifies this. Typically, Britain has been adamant on owning property, not renting. Quite the opposite of Continental Europe. However, it is vital that we work with the increasing changes in order for the market to progress successfully.
What did the government do?
With rental options lacking quality, quantity and value, the Government endeavoured to make changes. In order to support developments in the rental market, they set up a Build to Rent Fund. The loans this scheme offered would cover up to 50% of development costs within this field. It wouldn’t be ridiculous to assume this scheme was a catalyst for the rise of investment within rental property. Although the fund ended in 2016, recent changes meant it wasn’t the end for Build to rent support. The Home and Communities Agency replaced the original fund with a Home Building Fund. This allows more funding for private sector developing schemes, including Build to Rent.
What does Build to Rent actually involve?
Traditionally, house building in the UK, would be aimed at selling flats and houses direct to either householders or landlords. Build to rent, however, provides a foundation for properties to be built and put on the rental market instead. Contrasting to Buy to Let, Build to Rent offers a more long-term approach for income. One-time selling of properties, dependent on the current market, restricts the profitability. Built to rent, on the other hand, generates income over long-term renting. Inspired by the American rental market, companies can have ownership of large collections of homes. They will be able to secure long-term tenants, and consequently rent, and avoid house price fluctuation issues.
What impact will Build to Rent have on the UK housing market?
Build to Rent enables developers to be involved in more projects as they share the risk with the Government. Defined as a ‘fully recoverable investment’, the scheme undoubtedly has attractive traits for many developers and investors. With the state of the current housing crisis, Build to Rent could become a partial resolution. The funding offers improvement of the quality of houses and also more development, aiding the housing crisis.
Why are investors attracted to Build to Rent?
It’s not surprising to find that new rental homes earn higher rents than older properties. Tenants often pay a ‘first move in’ premium. Studies suggest that new builds can attract rents of over a third more than properties that have been around longer. Investors who want to focus on long-term commitments with higher yields should consider Build to Rent. The simpler Buy to Let still remains a popular choice for many investors. However the prospects of a healthier rental income over the longer-term is an attractive characteristic of Build to Rent.
At Capitum we specialise in developing Houses in Multiple Occupation (HMO) in Nottingham for young working professionals.
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