With tightening budgets hampering the progress of new social housing development projects, councils and housing associations are increasingly looking to private landlords to meet their social tenant demand. 

A growing trend of rent-to-rent agreements between authorities and landlords has been emerging; but is it a trend you should jump on before it’s too late?

What is rent-to-rent social housing (aka guaranteed rent)?

Rent-to-rent is an alternative to traditional private lettings, which offers landlords a more secure means of generating rental income; while also making a positive difference to local communities.

Effectively, you let the property to a local council or not-for-profit housing association, who then sub-let it to vulnerable tenants (such as asylum seekers, single mothers, and other individuals who are in need). 

The council or association is the ‘renter’ while the tenant living at the property is the ‘occupier’.

HMOs and MUFBs are particularly sought after by these renters, as they can provide accommodation for multiple households at once.

But isn’t sub-letting illegal?

Typically if a tenant rents out a property without the landlord’s permission, the tenant is breaking the law; but in this case, rent-to-rent is an agreement where the landlord is giving the authority or housing association their consent to sub-let to tenants. 

Thus, rent-to-rent social housing is entirely legal and above board.

A versatile solution for landlords

For many landlords, rent-to-rent provides unique solutions to the problems they face:

• For embattled landlords facing down the uncertainty of the buy-to-let sector over the past few years, rent-to-rent promises a more steady and reliable income stream.
• For ethical landlords and newcomers who want to leave a positive impact on the industry, social rental housing agreements enable them to assist the people most in need.
• Landlords who want to stay more hands-off with their portfolio can do so; without enduring letting and management fees.
• Crafty investors and ‘accidental landlords’ can use rent-to-rent as an outside-the-box strategy to make the most of low-growth areas and less desirable properties.

What are the advantages – and disadvantages – of rent-to-rent social housing lettings?

Pro: Guaranteed rent for a fixed period

This is the big one that draws landlords to social housing. 

Buy-to-let is unpredictable. Traditional rent can be suddenly interrupted by void periods, or even just tenants in a tough spot with money; throwing your financial plans and portfolio strategy into chaos. 

Rent guarantee insurance can cushion the blow, but it’s ultimately another cost eating into your property budget.

In stark contrast, rent-to-rent can instead offer steady, reliable government-backed rent over a set number of years; typically anywhere from one to five years, and sometimes up to ten.

It doesn’t matter if the property is occupied or not; you’ll always get the rental income direct from the authority or association.

At least, that’s how it should work…

Con: ‘Guaranteed’ isn’t always guaranteed

There are plenty of cases of landlords having successful working relationships with local authorities and housing associations. 

Unfortunately, there are also plenty of cases where the opposite is true.

There are horror stories of landlords signing up for ‘guaranteed rent’ social housing schemes and not receiving a penny; particularly in cases where a shady lettings agent acts as a middleman between the landlord and the authority or association.

Plus, with growing numbers of local councils declaring bankruptcy in the UK in recent times, successful rent-to-rent arrangements can be unexpectedly uprooted when the government steps in.

This doesn’t mean that ‘guaranteed rent’ is never guaranteed, of course; but it does mean you’ll need to do your due diligence. 

Before you jump into a rent-to-rent contract, make sure you fully investigate the reputability of all parties involved and review the terms of the agreement in full with your solicitor.

Pro: No agent fees

When it comes to running a buy-to-let portfolio, you’re in charge of finding tenants, managing tenancies and handling general maintenance; which gets tricky if you’re investing in properties away from your own home.

Most landlords rely on letting agents to take care of all these things for them; but that comes with costs in the form of agent fees.

Put simply, if you go down the rent-to-rent route, you won’t have to deal with these costs. The renter organisation takes on responsibility for finding and managing tenancies, as well as carrying out general maintenance and reasonable repairs. 

You won’t even have to deal with the occupier tenants yourself; ideal for landlords who wish to stay fully hands-off with their investments. 

At the end of the tenancy, you should even get your property back in the condition you originally left it in (minus reasonable wear and tear).

It’s key to note that you aren’t completely off the hook for repairs. In most cases, you’ll still have a legal responsibility to ensure any necessary repairs are carried out under section 11 of the Landlord and Tenant Act 1985.

However, in many cases, the renter organisation may be willing to carry out repairs on your behalf. Make sure repair responsibilities are fully spelt out in the contract before signing.

Con: Councils and non-profits aren’t always great partners

We’ve already talked about how guaranteed rent isn’t always guaranteed, but that’s not the only potential issue with working with local authorities and housing associations.

These entities can often be slow-moving and disorganised. Their goals and working cultures don’t always line up with those of landlords, which can make effective communication tricky.

There are reports of renter organisations failing to keep up with the repair duties they implicitly (or sometimes explicitly) agreed to, and of properties returning to landlords in a poor state (with the landlords then finding themselves footing the bill for renovations).

Again, the solution here is to review your partners carefully, and to ensure any contracts with them are solid, comprehensive and non-negotiable. 

It’s also wise to document the condition of your property in great detail before handing it off to a renter.

In addition, housing associations and local authorities are required to be members of the Housing Ombudsman Scheme by law; which can help in resolving disputes.

Pro: Rent rises with inflation – and other benefits

Private rental income may be unpredictable, but with social housing, the government-backed rent you receive always moves at least in line with inflation.

And it gets better. The government recently announced that it’s planning to remove a cap on social rent rises; instead rising rents by the rate of the consumer prices index plus an additional 1% In other words, rental income from rent-to-rent social housing looks set to rise by more than inflation.

But that’s not the only financial benefit. Many renter organisations also offer additional incentives for landlords; such as council tax exemptions on HMOs, or even accreditation via the local council’s landlord accreditation scheme.

Con: Fewer mortgage options

Many lenders aren’t keen on funding social housing purchases.

But why? You might assume this would be great PR for banks and financial institutions, as they’re effectively offering a lifeline for society’s most vulnerable individuals.

Unfortunately, PR is exactly the problem. 

If you can’t keep up with mortgage payments, your lender will need to repossess your property to recoup their losses; and that means evicting tenants. 

No household-name bank wants to be known as the bank that kicks vulnerable people out on the streets!

There’s also the complexity of mortgage arrangements. A rent-to-rent agreement is effectively two different tenancies running in parallel – you playing landlord to the housing authority, and themselves playing landlord to the occupier tenant. 

Most mortgage products simply aren’t compatible.

But, there are lenders out there who can help; and we know how to find them…

Affordable SPV mortgage deals for rent-to-rent social housing

Interested in investigating whether rent-to-rent is right for you? 

At SPV Mortgages, our specialist brokers can help you get pre-approved with social housing friendly lenders across the UK.

To get pre-approved fast, or to discuss rent-to-rent with one of our mortgage specialists, call us on
01489 536 358 or email enquiries@spvmortgages.co.uk today.