There are a few things that must be done to try to fix the afore mentioned problem:
1) Encourage transactions of housing from landlords to tenants
2) Support a mechanism that allows a % of tenants rent to go toward purchasing the property
Landlords would opt into the ‘rent to buy scheme’ after completing a property purchase. The rent to buy scheme would calculate a fixed % of property growth per year (based upon CPI). When a tenant rented a property, they would opt into the rent to buy scheme if available. This would give the tenant the opportunity to exercise a sale on the property after 2 – 5 years at the agreed price agreed as per the schemes annual growth formula.
At the end of the rental tenure, should the tenant wish to exercise the purchase option, 20% of their rental fees over the period will go toward their house deposit. (The 20% could be kept in a safe government backed account).
Should a landlord operate through this scheme, they would be eligible for CGT relief on the sale.
The lost CGT relief given by the treasury should be offset by the increase in Stamp Duty receipts as a result of the increased property turnover encouraged by this scheme.
Should a tenant not wish to exercise the buy price and wish to move out the property, the 20% will be released to the landlord. Should the tenant wish to extend the purchase opportunity and continue to live in the property, the option could be extended upon agreement of both parties.
Key benefits of the scheme:
1) Allows renters to save their deposit whilst renting.
2) Give landlords/investors a modest guaranteed return whilst also giving back to the community
3) Controls UK house price inflation ensuring it doesn’t continue to outstrip earnings growth.
4) Increased transactions in the housing market, positive knock on effect with estate agents, solicitors, trades people etc.
5) Government tax relief of CGT offset with increased tax receipts from SDLT.
6) Gives tenants the opportunity to live in a rental property whilst making it a home.
7) Gives tenants an opportunity to test an area whilst also saving toward a deposit.
Who could be the schemes investors:
1) Institutional investors looking for fixed returns
2) Private landlords wanting to de-risk the property market
3) Companies with property wishing to give employees the chance to purchase.
If you would like to hear more about this scheme, I have both a presentation and example calculations for tenant savings & landlord returns.
The %’s mentioned in this policy are up for debate and could be discussed with policy makers to ensure the best outcomes of the scheme.
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