Build to Rent Finance

What is the Build To Rent Scheme?

The Build To Rent Scheme in the UK is a government-backed initiative aimed at promoting the development of purpose-built rental properties. It is designed to address the increasing demand for high-quality rental accommodation and provide support to developers in the Build To Rent sector. The scheme was introduced in 2012.

Key Features and Benefits of the Scheme

There are many benefits of the BTR scheme to tenants and local communities, but the benefits to build to rent developers are less commonly stated. There are many positive reasons why developers and investors should consider this market:

Stable and Predictable Income: build to rent (BTR) properties provide developers with a steady and predictable rental income stream. Unlike traditional residential sales, rental income can be generated on an ongoing basis, providing long-term financial stability.

Higher Rental Yields: BTR properties often offer higher rental yields compared to standard residential properties. With a purpose-built design and amenities tailored for renters, Build To Rent developments can attract higher rental rates, maximizing the return on investment for developers.

Reduced Vacancy Risk: BTR properties tend to experience lower vacancy rates compared to traditional rentals. With a well-managed BTR development and a growing demand for quality rental housing, developers can minimise the risk of prolonged vacancies and maintain a consistent occupancy rate.

Professional Property Management: build to let developments typically involve professional property management services. Developers can outsource the day-to-day management tasks, such as tenant screening, maintenance, and repairs, to experienced property management teams. This allows developers to focus on their core competencies while ensuring efficient and effective operations.

Long-Term Capital Appreciation: build to let properties can offer the potential for long-term capital appreciation. As rental demand continues to rise and the rental market expands, BTR developments in desirable locations have the opportunity to appreciate in value, providing developers with the potential for a profitable exit strategy in the future.

Diversification of Portfolio: Entering the build to rent market allows developers to diversify their property portfolio. By adding rental properties to their portfolio, developers can reduce their reliance on a single revenue stream from property sales and create a more balanced and resilient investment strategy.

How do Build to Rent developments differ from other schemes and rental options?

Build To Rent developments differ from traditional residential developments in several key ways. Here are some of the primary distinctions:

Purpose-built for Rental: Build To Rent developments are specifically designed and constructed with the intention of being rented out to tenants. Unlike traditional developments where units may be sold individually, these properties are purposefully built to cater to the needs and preferences of renters.

Long-term Ownership: In a Build To Rent project, the developer or an investor typically retains ownership of the entire development. This long-term ownership approach allows for greater control over the management and maintenance of the property, ensuring a consistent rental experience for tenants.

Amenities and Services: Build To Rent developments often offer a wide range of amenities and services tailored to enhance the rental experience. These may include on-site gyms, communal spaces, co-working areas, concierge services, pet-friendly facilities, and more. The aim is to create a sense of community and provide convenience and added value to tenants.

Professional Property Management: As the owner of the entire development, the developer or investor usually employs professional property management companies to handle day-to-day operations. This ensures that maintenance, repairs, tenant inquiries, and other management tasks are promptly and efficiently addressed.

Tenant-Focused Design: Build To Rent developments prioritise the needs and preferences of tenants during the design and construction process. Units are often designed with modern layouts, high-quality finishes, energy-efficient features, and a focus on functionality and comfort. The aim is to create desirable living spaces that attract and retain tenants.

Flexible Lease Terms: Build To Rent projects typically offer flexible lease terms, including shorter or longer tenancies to accommodate various tenant preferences. This provides renters with greater flexibility and the ability to choose lease durations that suit their circumstances.

What makes build-to-rent homes attractive to tenants?

Build-to-rent homes offer several attractive features to tenants. These may include high-quality finishes and modern designs, desirable locations with access to amenities and transportation, professional property management services, flexible lease terms, dedicated customer support, and often, a sense of community through shared spaces and organised events.

The focus on tenant satisfaction, convenience, and a hassle-free rental experience makes build-to-rent homes appealing to renters.

Current Rental Market Snapshot In UK

Rental prices continue to rise in the United Kingdom, with Office for National Statistics (ONS) figures suggesting an increase of 4.9% in what tenants paid in the 12 months leading to March 2023.

With significant challenges in the housing market, demand to buy property is slowing, which places greater importance on the rental market. This demand is likely to remain for some time, making the rental market, and BTR, an opportunity.

Working with specialist Build To Rent Lenders

Specialist Build-to-Rent (BTR) lenders are financial institutions that specialise in providing financing solutions for BTR developers, or general lenders with an expertise in this area of finance. These professionals possess industry knowledge, offer tailored financing options, and have experience with BTR projects.

Developers should research potential lenders to find the most suitable assistance for their project, prepare a comprehensive proposal, engage in dialogue to discuss financing options, provide necessary documentation, and negotiate terms. Working with specialist BTR lenders can streamline the financing process and help developers navigate the unique challenges of BTR projects.

Do developers need to provide affordable housing?

In most cases, yes, developers need to provide affordable housing under the BTR scheme. Government guidelines list 20% as a suitable benchmark for affordable housing in a development.

Can Build to Rent properties be bought and sold in the future?

Yes, Build to Rent properties can be bought and sold in the future. While these properties are purpose-built for rental purposes, they are not restricted from being sold. The ownership of a Build to Rent development can be transferred to new owners who can continue operating the property as a rental investment or choose to convert it into other forms of residential or commercial use.

The ability to buy and sell Build to Rent properties provides flexibility for investors and developers, allowing them to capitalise on market opportunities and adapt their investment strategies over time.

What happens if homes within a build-to-rent scheme are sold off into separate ownership?

If homes within a build-to-rent scheme are sold off into separate ownership, they are typically no longer part of the original BTR scheme. The new owners may choose to use the properties for personal occupancy, sell them individually, or rent them out independently, thus transitioning them out of the BTR model.

Arranging Build To Rent Finance

Are you a developer looking for to raise finance for a build to rent development?

We have specialist lenders who work in this area that can help, so please either call The Moneyhub Limited on 0203 725 5830 and speak to one of our highly specialised and dedicated Advisors or you can complete an enquiry form which will allow you to schedule a call time.

DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.

Sources: https://www.gov.uk/guidance/build-to-rent