David Wilson Homes has launched a scheme where prospective buyers who can muster a 2.5% deposit can reserve a home, move in and pay rent for six months.
The rent then goes not to a traditional landlord but to the developer as a contribution towards turning the deposit into a total of 5.0% of the purchase price of the unit. There are various conditions to the scheme, which is currently being tried on selective plots at 10 David Wilson Homes estates around England.
You must be a first-time buyer and have never previously owned a home, and therefore be eligible for first-time buyer relief on stamp duty land tax.
The rental and subsequent purchase of your new home is subject to contract and will remain so until you have exchanged contracts. When you exchange you will be legally committed to a six month assured shorthold tenancy and to complete the purchase of your home at the end of that six months.
The terms and conditions add “Your eligibility for Rent Then Buy will depend on strict financial criteria and you must have sufficient funds to pay the standard reservation fee, the deposit of 2.5% (less the reservation fee already paid) on exchange of contracts and sufficient income to pay to us by standing order a further 2.5% deposit by monthly instalments over the 6 months that you rent your home. These monthly instalments will be treated as rent payable to us in respect of the tenancy of your home. If you subsequently fail to legally complete your purchase of the home on the agreed legal completion date, we will be entitled to retain these payments and the 2.5% deposit you paid on exchange of contracts. If you do complete your purchase and have paid all of your rent, you will be given allowance from the price for these payments.”
Prior to exchange of contracts the prospective purchaser must obtain a mortgage offer for 95% of the price of the home and ensure that this remains valid until the legal completion date for the purchase of the home - David Wilson Homes has the right to check the salary, savings and mortgage offer of the tenants.
The terms conclude “your tenancy of the home will end on the agreed legal completion date for your purchase of the home. Around 2 months before this date, we will send you a written notice to confirm this. If you subsequently fail to complete your purchase on the legal completion date, your right to remain in the home will have ceased and if you do not leave the home, we may take legal proceedings to evict you.”
More landlords report rising tenant demand
Vast majority of landlords also seeing rental inflation in the areas where they operate
The proportion of landlords reporting increased levels of tenant demand during the third quarter of the year hit a new record high, according to specialist buy-to-let lender Paragon Bank. A study, conducted by market researcher BVA BDRC on behalf of Paragon Bank, has revealed that over seven in 10, or 71%, of landlords reported rising levels of tenant demand, up from the previous record high of 67% recorded in the second quarter – marking a new all-time high across the 12-year period that the metric has been tracked.
Breaking down the numbers by region, Paragon found that the strongest levels of tenant demand can be observed in the West Midlands, with 76% of landlords in the region reporting an increase, followed by Wales (75%), the South East (74%), and East Midlands (73%).
The North East (65%) and the East of England (61%) saw the lowest proportion of landlords reporting tenant demand increases.
Aside from increased tenant demand, landlords are also reporting rising rents, with 87% saying this was a current trend in areas where they let properties.
Seven in 10 landlords stated that they have increased rents across their own portfolio within the last 12 months, up from 65% in Q2. A lower proportion, 54%, of landlords are planning to raise rents across their portfolios in the next six months, up by three percentage points since the previous quarter. Those planning to increase rents anticipate doing so by an average of 8.4%.
Two thirds, or 66%, of landlords cited covering the increased cost of running a property as the reason why they are planning to increase rent – the most mentioned reason despite falling from 74% in Q2.
This was followed by aligning with local market rents, which was the reason behind planned rent rises for 63% of landlords, up by four percentage points since the previous wave. Just under half, or 48%, of those intending to increase rents said that they will do so to cover increased mortgage finance costs, a nine-percentage point decrease on the last quarter.
“During the first two quarters of the year, we saw record levels of tenant demand reported by landlords,” said Richard Rowntree, managing director for mortgages at Paragon Bank. “For this to be surpassed in Q3 highlights how the imbalance between the supply of rented homes and demand from renters is not improving. This reduces choice and increases competition for renters, while fuelling rental inflation, a scenario that often impacts the most vulnerable to the greatest degree. With social housing unable to meet this demand and home ownership aspirations hindered by cost-of-living pressures, further investment in the PRS cannot be delayed.”
Latest RICS survey shows start of lettings market shift
The latest RICS lettings market survey shows another increase in rental demand - but that demand appears to be slowing. The institution’s regular sentiment survey shows a net balance of +33 of respondents noting an increase in tenant demand in the three months leading up to October.
Although still positive, this is the most modest reading for tenant demand since Q2 of 2021.
At the same time, landlord instructions remain in the negative with a quarterly net balance of -18 in Q4.
Looking ahead, a net balance of +53 of survey participants predict rental prices increasing over the next three months - this is easing slightly on the record high reading of +61 seen in Q3 2023. Over the next 12 months, rents are projected to rise by around four per cent on average across the UK.
On the sales side, prices nationally - in terms of net balance - saw a slightly less negative reading then last time at -63 (-67 in September) suggesting that the pace of decline may be steadying as the end of 2023 approaches.
For agreed sales, a net balance of -25 (-35 in September) remains consistent with the overall weak activity levels that have been witnessed throughout October.
RICS Senior Economist, Tarrant Parsons, says “plenty of caution remains evident with respect to both buyer and seller activity across the UK housing market, albeit the latest survey feedback points to a slightly less negative picture than that reported over the previous few months. Although base interest rates have now been kept on hold at each of the past two MPC meetings, the Bank of England was keen to emphasise that monetary policy is set to stay at a restrictive setting for quite some time yet. As such, mortgage affordability will remain stretched over the near-term, leaving little prospect of a strong rebound in residential sales volumes, even if expectations have now moved away from cyclical lows".
ONS reports a rental price surge across UK
Private rents increased by more than 6% in England, according to the ONS lettings price index. London saw a big surge in rent prices at 6.8% – the biggest annual rate rise since London records started in 2006.
Private rental prices in Wales increased by 6.9% in the 12 months to October 2023 and by 6.8% in Scotland.
Rise in rental prices
ONS head of housing, Aimee North, said “the rise in rental prices continues to accelerate across the country, with Wales, London and Scotland seeing the biggest annual increases.”
Gareth Atkins, managing director of Lettings at Foxtons, said “In October, London saw its typical decrease in renter registrations, which we’ve all come to expect after the summer rush ends and we head into the calmer winter season, while supply and demand in London were still imbalanced rental instructions increased. At the same time, we are encouraged that the 12% increase in rental instructions suggests landlords remain confident in London’s unfailing appeal.”