While it’s still not enough compared to the amount of privately rented houses in the UK and elsewhere, the construction to rent market is rapidly growing. In the UK currently, there are more than 150,000 homes in planning or under construction that are scheduled to be completed in the coming five years.
Demand for rental properties is high because there is a shift toward renting your home. The idealistic idea of paying off a loan to buy your home is believed to be a dated method of homeownership for a lot. This, along with an increase in home costs within Britain and London in general, has led to a rise of home prices. UK and London specifically, has led to many people deciding to rent.
This article outlines the numerous pros and cons as well as complex arguments that can be made on the subject.
What exactly is Build to Rent?
The term”build to rent” refers to the development of housing intended for rental markets instead of those who are in the home market. These include amenities and conveniences which are also included like bars, gyms, and communal living spaces that are appealing to the communal renter.
What makes these developments different from landlords simply renting their homes is a set of strict conditions. Landlords must include at least 50 houses specifically available to renters for at least 15 years, and make sure that each home is rented as a separate unit.
Additionally, tenants of these properties can get long-term leases that shield the tenants from increases in rent that they aren’t able to anticipate, and provide tranquility that does not occur when renting with short-term leases.
Furthermore, for landlords, constructing houses with the capacity to rent them out can generate long-term income that generates significant cash flow by generating rental income. The ideal option for landlords considering an investment for the long-term and getting the best rental yield with a smaller quantity of property.
What is the difference between Build to Rent and PRS?
PRS is a reference to the private rental industry which is a term used to describe housing that is managed by private people or associations. This excludes public organizations like the local authority, councils, and non-governmental organizations.
The sector of build-to-rent is one of the schemes that falls under the larger umbrella of the Private Rental Sector as it is run through private landlords.
What is the Build to Rent Work?
Renting a building will require an extensive amount of construction work in the event that you’re building on an undeveloped land. It will also require an extensive amount of new construction work when the building is already in use.
The specific requirements to be eligible for the build-to-rent scheme are listed below. In this listing, you’ll be able to be aware of the complexity of building to rent and the way in which it works for landlords.
The development must comprise at minimum 50 homes (councils may choose their own number, based on rental income)
Tenants are not required to pay landlords extra fees before moving into the property, besides deposits
All homes are managed under one roof with each home rented separately
There must be a contract that the development will be rented out for a minimum period of 15 years.
Provide at least three-year leases that include break clauses for tenants
Landlords must make sure they do not have financial incentive to violate any clause in the agreement to build and rent or to face a clawback procedure to discourage this behavior
Create a formula for any service and rent increase for tenants
Make arrangements with the site’s management team who have a complaint procedure and are members of an approved Ombudsman scheme.
Despite the requirement of having a single landlord who is the sole owner of the entire build-to-rent scheme, the owners are able to alter their ownership throughout the build to rent tenure even when there are tenants present at the time of occurring.
What is the reason why Build to Rent is an investment worth it?
For landlords, building to rent provides stable, predictable rental yields over a long period when your market analysis is accurate on the demand for housing in the location. For instance, if the build-to-rent is located in the right location it will result in a oversupply of tenants seeking long-term leases on the property.
They must be at least three years according to the requirements for building to rent thus occupancy rates and the demand for rental are usually at a high level.
Furthermore, rents in relation to the dimensions of rooms are on average, 11% more than those outside of the build-to-rent sector. Landlords can set this price due to the additional advantages of domestic services for tenants, which could include security or laundry. In addition, they can provide amenities such as social spaces, gyms and furnished contemporary living areas.
In general, a build-to-rent can be a good option for landlords attracted to a long-term capital-intensive business model. This is because they have to sustain the development going for more than 15 years.
Are there properties that can be purchased and sold in the near future?
To maintain the build-to-rent status the law stipulates that all houses must be rent-free for a minimum time typically 15 years. If a borough does not specify otherwise. If this rule is not followed, there is a financial penalty due by the local council.
The fine is set in this way so that the landlord is liable for losses when this clause is not followed. Therefore, generally, prior to the period of 15 years has expired selling is not a good idea. Particularly when taxes such as stamp duty and the land tax are taken into consideration because this could be extremely costly on high value build for rent development.
In the future, however, certain or all houses can be sold however there is an agreement that when an apartment is sold, it is still considered affordable housing, and thus it cannot be assessed survey, and then it is sold.
In other words, if the developer can’t keep the house in the Affordable Housing Agreement, they’ll need to ensure that the home is relocated within the vicinity within the area of development. In some cases councils might also require an amount that will be the same as the amount a tenant could have received as compensation for purchasing their house under the Affordable Housing Act.
In general, developers and landlords would like to keep the majority of properties they manage let out the longest time possible, due to the potential consequences of selling a house. It is therefore essential that the landlord can hold off on rent in the long run prior to commencing a build to rent development. Auctioning or selling a unit could cost them money.
Who can be a resident in the build to rent affordable housing?
The Build to Rent scheme is well-known because it offers a large amount of affordable housing. In the face of a shortage of housing throughout London particularly the government offers incentives to landlords who provide affordable housing.
How can you define affordable housing?
Affordable housing refers to homes which are rented less than market value, by at least 20% . They are referred to by the name of DMR (Discounted market rent) homes. They differentiate from those in social housing in that people of all ages don’t need to qualify for social housing to reside within affordable homes. It is also not necessary to be a homeowner to qualify for affordable housing. It will be more appealing to people with less income.
It is crucial to keep in mind that not all build-to- rent homes are affordable, as well as the affordable houses in the build-to-rent plans are typically higher than average rent for affordable housing in any case.
This is due to the fact that the rent price in the build-to-rent scheme is generally higher than the market value, so rents that are affordable are subsidised, but not in the same way as they would be if tenants is renting from a landlord the buy-to-let property, for instance.
who are qualified to live in a affordable housing that is built to rent?
Anyone can qualify for affordable housing. This isn’t something you need to apply and be approved to be eligible for. The government is trying to ensure some affordable rental rates in the housing market for “households who aren’t being met with the current market”. Similar to other programs, such as the help-to-buy scheme, for instance.
Most people living in housing that is affordable are there because due to being priced out a highly competitive market for property.
Who is in charge of affordable housing?
Affordable housing is privately owned since they’re managed by the landlords and developers. However, the build-to- rent scheme is overseen and its rules are modified through the federal government particularly by the Department for Levelling Up, Housing and Communities (DLUHC)
Landlords who are able to help meet the goal of affordable homes, that aims to invest 4 billion between 2021 and 2026 in order to house more people in the next few years.
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