Whilst there may be some relief amongst the social housing sector about a 7% rent increase cap and an exemption for supported housing, thoughts have quickly moved to implementation and some of the hard choices that housing associations will need to make over what they continue to afford to do. With development costs inflating well above current CPI inflation, building safety and fire safety obligations adding to costs and interest rates eroding margins, there are some tough choices to be made over the future. 

Housing associations representing 80% of the Shared Ownership homes in England have already signalled their intent to commit to a 7% cap on rent increases for Shared Owners – the Voluntary Rent Cap. They will have immediate questions about how they do this. Other organisations will be considering whether they can also make this commitment. In advising the NHF, we have already tackled questions such as “how does this work in practice?”, “what are the potential barriers?” and “how can this apply to subsequent shared owners and their lenders?” This Anthony Collins advice is available to NHF members as part of the benefits of membership. We address the following key questions:

Impact on typical funding arrangements: the variety of different funding arrangements is extremely wide. Whilst most housing associations should be able to navigate their way through their funding terms to commit to the Voluntary Rent Cap, there are three areas that associations need to be concerned about and will need to check their terms. First, are leaseback deals based solely on a shared ownership portfolio. These are very rare but they are the most challenging to comply with. Secondly, bilateral lending secured exclusively on portfolios of shared ownership properties. Thirdly, general funding agreements that contain a widely used loans and guarantees clause.

Homes England: we expect Homes England will need to issue a general consent to enable housing associations to commit to the Voluntary Rent Cap.

Documenting the Rent Increase: perhaps the most challenging and important aspect is documenting, and ensuring the enforceability of, the shared ownership rent increase when successive shared ownership model lease terms do not give landlords the discretion to increase rents at lower than the set formula (most recently RPI+0.5%). Whilst there is no ideal solution to what could be seen as a variation of lease terms, we consider we have identified a practical and enforceable solution.

Governance and Compliance: committing to the Voluntary Rent Cap does have a number of repercussions and so Boards will need to address a number of key factors in their decision making to ensure they are exercising appropriate oversight and remaining within their objects and powers.

The rent increase cap will still force many housing associations into challenging decisions about what they will and will not be able to do. However, a 7% rent cap allows us to protect existing tenants from very high, one off rent increases whilst recognising future tenants deserve warn, safe and affordable homes to live in – and this will require levels of investment that are primarily only available from housing associations’ rental income.