Rent and save scheme for affordable housing

Published: July 17, 2008

Yesterday, the housing minister Caroline Flint announced a package of measures designed to rescue the UK's failing housing market. Central to her proposals is a rent now buy later scheme designed to help families and first time buyers save for a deposit. She was concerned that the withdrawal of 100% loans from the market, and the vastly increased expense of 95% loans has resulted in a lack of first time buyers, even though reducing house prices have been reducing.

The scheme allows a family with an income of less than £60,000 a year the opportunity to rent a property at a discounted rate for a given period of time. Suggestions are that the discounts are likely to be at least 20% of the market rent, and at the end of the period the tenant will be given the opportunity to buy the property, using as a deposit the money saved as a result of the discount.

Flint said: "We are determined to continue to do everything possible to promote long-term stability and fairness in the housing market. The international credit crunch has created significant challenges not just for the UK housing market but in other parts of Europe and the US. However, the long-term need to provide more homes has not gone away. We have a growing and ageing population and will only see worsening affordability unless we increase housing supply."

The Government plans to introduce a system of local housing companies to allow councils and the private sector to work together to develop surplus land. A pilot scheme is to run in four areas, with additional assistance being provided to enable 75,000 new homes to be built across those town considered most in need. On top of this, additional funding is to be made available to enable the purchase of surplus housing stock for turning into affordable homes.

Whilst the announcements have been well received by some, the general feeling is that the current scheme is very wide of the mark. Lembit Opik from the Liberal Democrats, was quoted as saying "Another day, another new affordable housing announcement. The government's hot air will not hide the fact that 10% fewer shared ownership homes were provided last year than in 2006."

Tim Lee, Managing Director of The Mortgage Warehouse said: "Any help which provides greater choice for new buyers is to be welcomed, but this scheme is simply a reaction to current difficulties and a further refusal to recognise the true problem. Until mortgage lenders can access funds to lend, and those which do have funds call a halt to the profiteering of recent months, house prices and availability are almost immaterial."

He went on to state: "The industry is having a torrid time at the moment, with large scale redundancies being announced in all areas. Not only are nationally recognised house builders having to lay off great swathes of staff, but the whitewashed windows in our high streets are testament to the plight of estate agents and others who rely on the housing market for their living. This announcement does nothing to provide the immediate help which is so vital to the futures of many."

Others have commented that without compulsion to save, the opportunity to occupy a house at below market rent is nothing more than a return to traditional council housing under a different name. This will be made more likely if large scale developments are bought at knock down prices and used to provide social housing.