New 'Rent to Buy' scheme to help people 'upgrade' to homeownership

Mixed reaction to new proposal to help renters

Two bedroom flat to rent in Victoria Street, St.Albans AL1. On with Langleys for £825 pcm (£190 pw).

A new £400 million programme to boost the construction of new rental homes is targeting people who want to rent affordably initially while saving for a deposit, and then either buy the new home - or a different home- later.

Under the scheme announced today by Communities Secretary Eric Pickles, housing associations and other providers can bid for a share of £400 million in low-cost loans to build up to 10,000 new homes across the country from 2015 to 2018. These will mostly be one and two bedroom homes.

Landlords must then make the homes available for rent at below-market rates for a minimum of seven years to give tenants the chance to save for a deposit to buy. At the end of the period, the tenant will have first refusal to buy the property.

"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," said Mr Pickles.

Matt Hutchinson, director of flatshare website SpareRoom.co.uk, described the scheme as 'good in theory'.

"The reality, however, is that even 10,000 homes won't scratch the surface of a chronic supply problem that is severely impacting renters hoping to get onto the property ladder, particularly in London," he said.

"Like Help to Buy it simply doesn’t go far enough. Announcing a new policy to help first time buyers is a handy short-term win for the government, especially with an election looming, but we need to fix the housing crisis for everyone, not just a lucky few. The government needs to think bigger and reach more people. In a climate of short term politics we need a government prepared to make tough decisions, the housing crisis could take a generation to fix."

Emma Reynolds, Labour’s Shadow Housing Minister, said it was "another piecemeal measure" which would fail to solve the property crisis.

"We need a step-change in the number and quality of houses built so that people of all ages and backgrounds can have a place to call a home," she said. "That means tackling the undersupply and banking of land, opening up the market to get more builders building and giving communities more power to make sure the homes they need locally are built where they want them."

If the home is sold, the housing association will have the option to use any returns on their investment to build more affordable homes in the area. Of the £400 million of government loan funding for this scheme, half will be available in London.