Scottish Rental Income Guarantee Scheme to Boost Build-To-Rent Confidence

The Scottish government has launched a rental income guarantee scheme (RIGS), aimed at boosting investment in private rented housing.17 Oct 2017

The scheme will guarantee half of any gap between actual and projected income in the first three to five years of the operation of a build-to-rent development. The launch follows a consultation last year, which in turn came on the back of feedback from developers that a government guarantee was needed to build investor confidence.

RIGS will be managed by the Scottish Futures Trust. Through the scheme, the Scottish government will underwrite 50% of any gap between 95% and 75% of agreed rental income. If actual revenue is less than 75% of agreed rental income, the government will guarantee 10% of projected revenue.

The scheme is available to Scottish developments with at least 30 units, where the developer or investor has demonstrated long-term financial viability. Housing minister Kevin Stewart said it could deliver £500 million of investment and support the delivery of 2,500 new privately rented homes.

Image: Housing minister Kevin Stewart

Property expert Ewan Alexander of Pinsent Masons, the law firm behind Out-Law.com, said RIGS had received a warm welcome from potential investors.

“Investors are clear that this would be of interest to them," Alexander said. "There hasn't been as much build to rent development in Scotland as the industry had hoped for in the last couple of years, but momentum will build and RIGS should give investors and developers added confidence.”

“It's part of a bigger picture; we're not building enough homes for people in Scotland or in the rest of the UK. Renting as opposed to owning a home is often a bit more affordable and it's something that there has been increasing demand for in the last few years. RIGS is the Scottish government trying to add another tool in the box to facilitate the building of more homes to rent,” Alexander said.

The Scottish government also recently published planning delivery advice (3 page / 30KB DOC) for the build-to-rent sector, outlining the opportunities and challenges for developers and investors. It said build-to-rent can deliver housing quickly and would support economic growth, although there were challenges connected with development viability as upfront investment was required.

Alexander said Scotland and London were the only places in the UK where there is specific planning delivery advice for build-to-rent.

“It's an indication that the Scottish government recognizes that for build to rent to be successful there needs to be a degree of flexibility in terms of how you consider that type of residential development against how you consider other types of residential development,” Alexander said. “You have got to consider build-to-rent differently.”