Communities secretary Eric Pickles has pledged £400m to boost building of new rental homes that the government says will ultimately help people upgrade into home ownership.
Under the government’s Rent to Buy scheme, housing associations and other providers can bid for a share of £400m in low-cost loans to build up to 10,000 new homes across the country to be built from 2015 to 2018.
The new homes should mainly consist of one and two bedroom flats. Landlords must then make the homes available for rent at below-market rates for a minimum of seven years, giving tenants the opportunity to save up for a deposit and get ready to buy their own home.
At the end of the period, the tenant will have first refusal to buy the property. Alternatively they may choose to move out and buy a different property, or rent another property either privately or with the housing association.
If the home is sold, the housing association will then have the option to use any returns on their investment to build even more affordable homes in the area, or they can look to rent it again at an affordable rate to another tenant who needs help to buy.
Mr Pickles said: “This government is standing by people who work hard and do the right thing, and helping them move on and up in life.
“Both house building and the number of first time buyers are now at their highest rate since 2007. But there is more to do.
“As part of our wider housing programme, this new scheme will help increase the provision of low-cost rented accommodation and provide a springboard for young people to upgrade to home ownership down the line.”
Housing associations will have up to 16 years to pay back the low-cost loans. Until the loans are repaid, the homes must be made available for affordable rent. Only once the loans are paid can the housing association sell or rent it out at a market rate.
Of the £400m of government loan funding for this scheme, half of this will be available in London. London-based housing associations will bid for the funding through the Greater London Authority.