The guarantees were announced in September 2012 to kick-start private investment in the housing sector, which will create thousands of new homes and jobs, boosting growth across the country.
Following extensive consultation with the housing sector, the government is setting out eligibility requirements and how the guarantees will be structured, in the scheme rules for affordable housing and the scheme rules for private rented housing. It is also publishing an invitation to tender for the running of the schemes.
The guarantees will support new-build projects, located in the UK. The private rented sector guarantee will back a variety of options to invest in new homes for private rent, from building new homes to converting existing commercial spaces into rental properties.
This will make vital finance available for projects in any part of the UK that have a minimum value of £10million. The new homes will have to remain in the private rented sector until the money is paid back.
A separate scheme will be available to support new affordable housing projects, unlocking development for up to 15,000 new homes, on top of the government’s existing house-building programmes.
Building homes specifically for private rent is a relatively immature market in the UK compared with other countries, which has meant that investors and lenders can be cautious about supporting new-build projects.
Under this new approach, the government will reduce risk for lenders by guaranteeing to repay the money in the event of default from borrowers. This should enable housing providers to borrow at well below current rates, and therefore encourage more investment in the private rented market whilst ensuring checks are in place to protect taxpayers’ money.
At the same time a guarantee will be available for affordable housing projects. This will be complemented by £225million of grant funding, for registered housing providers in England to deliver up to 15,000 new homes for affordable rent or affordable home ownership.
Chief Secretary, Danny Alexander said: "The announcement [today] shows we’re getting on with delivering an ambitious guarantee programme, giving projects across the UK a unique opportunity to take advantage of the strength of the UK’s balance sheet, allowing businesses and homeowners to benefit from lower borrowing costs and more affordable housing.
"We must build on this momentum to boost vital investment in the housing sector, creating jobs, supporting small businesses and building the foundations for growth across the country."
Prisk said: "We’re introducing groundbreaking measures to unlock the vast, untapped potential for growth in the private rented sector. Investors will now be able to draw upon low-cost lending so they can bring thousands of new homes into the market.
"The housing guarantee schemes will help to get spades in the ground, create jobs, and establish new business models that will ensure the private rented sector continues to grow and more affordable homes are delivered."
The guarantees will support investors in a variety of ways. For example:
* An investor wants to spend £20million on a block of 100 flats that they will then offer for private rent. They can apply to the guarantee scheme for up to £16million, or 80% of the project cost.
To qualify, the homes must not yet have started on site, be well-designed and commercially viable with a plan for rental management, and meet the scheme’s stated criteria. If the application is successful and the scheme goes ahead as planned, the Government will guarantee their debt until it is repaid.
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