New ‘Rent to Buy’ scheme to help young people save and move up housing ladder

The government has launched a new £400 million programme to boost building of new rental homes and help people later upgrade into home ownership.

Under the scheme, announced 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, to be built from 2015 to 2018.

The homes will mainly consist of 1 and 2 bedroom apartments.

Landlords must then make the homes available for rent at below-market rates for a minimum of 7 years. This fixed period will give 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.

Alternatively, they will still have a home, which they can look to rent at an affordable rate to another tenant who needs help to buy.

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 £400 million 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.