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Bidding wars

The new rent to buy model operates a competitive funding system which opens for bids this year, explains Anne Jones

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The Communities and Local Government department has published a working paper outlining the key principles of its new affordable rent to buy model and is inviting comments.

The model will provide repayable investment to social landlords and private developers - but not local authorities - to build additional homes which must be let at affordable rent, which means up to 80 per cent of market rent, for at least seven years. The government’s £400 million investment cannot be combined with grant from the Homes and Communities Agency, and must be repaid within 15 years. After it’s repaid the property can be used for any purpose.

Access to the fund will be through a competition. Bids will be assessed on the criteria of value for money and deliverability. Initially the funding will be in the form of a loan with a fee, but the government is considering using an equity-style investment model if this is attractive to the market.

To drive value for money, the bidding process will favour schemes that can deliver more homes per pound of investment. Government funding will only cover a proportion of the development costs in any single scheme. Funding would be in two tranches, 50 per cent payable at start on site and the balance on completion. Interest on the loan would be kept at a constant, low rate for the first seven years and increase slightly thereafter.

The prospectus is due to be published this summer, while the deadline for bids will be October 2014 and funding decisions made by January 2015.

Anne Jones is a senior associate at Clarke Willmott

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