Rent to Own
The Lib Dems have launched 'Rent to Own' - a housing scheme that helps first-time buyers build up a share in their home through renting. Young people will be able to buy their own home without a deposit to help them onto the housing ladder under these radical Liberal Democrat manifesto plans.
Commenting on the proposal Isle of Wight PPC David Goodall said:
"This is a great scheme, young people often need a helping hand to get on to the housing market. In fact it was a Liberal run Medina Borough Council first-time buyers scheme that helped me first buy a house in Wootton Bridge."
This revolutionary scheme is a fundamental shift in housing policy and will give young people caught in 'generation rent' a chance at home ownership. It means working young people who are unable to afford a deposit will, rather than be trapped in rental accommodation forever, be able to own their own home.
First-time buyers will steadily build up a share in their home through monthly payments equivalent to rent until they own the property outright after 30 years, just like a normal mortgage. Under Liberal Democrat plans the Government would partner with housing associations and other providers to deliver 'Rent to Own' houses where monthly payments are no higher than market rent. Our policy forms part of Liberal Democrat plans to deliver 300,000 homes-a-year, with the government bridging the gap between private sector building and demand.
This scheme builds on ground-breaking work by social enterprise Gentoo Group, who have rolled out a similar scheme - called Genie - in the North East and plan to expand into London later this year.
Why this is necessary?
- House ownership has plummeted for the under 35s in the last decade, with just 36% of 25-34-year-olds owning their own home, down from 59%.
- Prices are now so high many working young people are unable to save enough for a deposit despite earning enough to meet future mortgage repayments.
- Surveys show 82% of people want to own their own home.
- If home ownership rates across all ages fall as low as among the under-35s, the government will face a fiscal time-bomb - paying more pensioners' rent through housing benefit.
- It is much more affordable for government to fund Housing Associations to deliver "Rent to Own" homes than traditional social rented properties.
- Delivering Rent to Own alongside affordable rented properties means we can afford to get to the scale of housebuilding we need, while still balancing the budget.
Deputy Prime Minister and Liberal Democrat Leader Nick Clegg said:
"For working young people the dream of homeownership is increasingly out of reach. Prices are so high renters cannot afford to save for a deposit, which means they can never take that first step onto the housing ladder. Young people deserve better. Rent to Own will mean, regardless of their background and family circumstance, they will be able to make this a dream a reality. This is about building a stronger economy and fairer society, and making sure Generation Rent has the same opportunity to get on in life as their parents and grandparents before them."
Peter Walls, Chief Executive of Gentoo Group, said:
"I am delighted the Liberal Democrats have recognised our innovation and are aiming to make this scheme scalable across the UK. A now proven concept, Genie has already unlocked homeownership for many that were excluded. At Gentoo, we aim to address societal challenges and developed Genie to let more people access homeownership in a fair and equitable way. We are looking forward to Genie launching in London later this year."
How this works?
- Rent to Own effectively allows first time buyers to take ownership of a home for the equivalent of market rent.
- The homebuyer effectively rents the property but accrues a share of the property every month until they have full ownership after 30 years.
- This methods negates the need for a huge deposit and will help working young people who can afford monthly payments - but are unable to save enough money for a down payment.
- And like with a traditional mortgage, this is back-loaded so occupants earn a higher share the longer they have been in the home.
- The occupants have the right to sell their property on the open market at any time, cashing out their share of the home - to use as a deposit for a home on the open market or to use as they wish.
This model will be viable for Housing Associations because, though over 30 years they transfer ownership of the property, the monthly revenue is equivalent to market rent: in other words, at least 20% higher than Affordable Rent, and approximately 40% higher than Social Rent. We will partner with housing associations and other providers, such as Gentoo, to ensure monthly payments are no higher than market rent. Rent to Own homeowners will also be responsible for care and maintenance of their property, like other homeowners, reducing Housing Associations' costs.
Genie is a social enterprise already providing homes on a similar model. Liberal Democrat proposals differ because we want to use government intervention to ensure payments are no higher than equivalent market rent.
Central government involvement
Liberal Democrats will issue a prospectus to the affordable housing sector early in the next Parliament to identify the best method for intervening to deliver Rent to Own homes. We expect our delivery model to be based on land or equity investment to support providers, but will consider a variety of approaches
We will aim to deliver 30,000 Rent to Own homes a year by the end of this Parliament. This will be funded through our Intermediate Housing Fund: Liberal Democrats believe "intermediate" products should be funded separately from social housing.
This is part of our plan to boost housebuilding to 300,000 homes a year. Rent to Own will be delivered as part of our "government commissioned" housing stream which will include a mix of private homes for sale, private rented, conventional social housing, conventional shared equity and Rent to Own. Further details of our policies, including for social housing, will be announced soon.
Applicants will have to be in steady employment with the same kind of affordability tests and credit checks as for a conventional mortgage. An upper means test for these properties will not be necessary this is a more expensive option than buying "normally", so only those who cannot buy on the open market will apply. We will exclude anyone who owns their own home already, however.
This is a devolved policy matter and an England-only policy.
Other Liberal Democrat housing plans
Liberal Democrats have set an ambitious target of increasing the rate of house building to 300,000 a year, and build to the Zero Carbon Standard. Within the first year of the next Parliament, Lib Dems in government would publish a long term plan which sets out how this goal will be achieved.
To realise the plans a ministerial taskforce on housing would be appointed, hosted by the Cabinet Office to oversee this task. We will also publish proposals for at least ten new 'Garden Cities' in England, in areas where there is local support, providing tens of thousands of high-quality new homes, with gardens and shared green space, jobs, schools and public transport.