Housing Benefit and inflation linked leases
- 18th May 2023
- Investing
One of the key (positive) features of the supported living properties offered by Assetz Exchange is the annual reviews to the rent we receive which usually increase the rent in line with inflation.
In a world where double digit annual increases in consumer price inflation (CPI) is not uncommon these increases play an important role in maintaining the real term returns of our investors’ income and a key differentiator between Assetz Exchange and other peer to peer investment platforms.
In the past month we have seen in excess of 20 properties undergo a rent review which have often added in excess of 0.5% to the investment’s yield. This has prompted a number of questions from investors who are wondering why some of the increases differ from property to property and why some of our recent launches include caps to the size of any inflation increase.
This blog attempts to explain why these differences occur and where the funding for these increases come from.
Investment Structure
First of all, it’s important to understand how the investments on the platform are structured. Other than the odd exception, each property is held in a stand-alone company that has legal restrictions placed on it that dictates all revenues/profits must be paid out to investors and also that all significant decisions must be made by investors by way of a vote.
The property purchase is funded by a loan (called a peer-to-peer or article 36H loan) made by investors to the company. An agreement is then made with one of our partners (typically a charity or housing association) to lease the property from the company for a period of time; usually 5-10 years. It is this lease that stipulates the terms of the annual reviews of the rent. The leases are available for investors to view in the property details page of each investment opportunity.
Finally, the loan agreement (which is made up by the Terms of Agreement and Loan Conditions, can be seen on each and are available on the property details pages) mirror the terms of the rent review so that interest paid to investors will go up in line with the increases in rent.
Where does the rent money come from?
Most of our partners receive the money to pay the rent on our leases by way of Housing Benefit received from the local authority where the property is situated. There are strict limits to Housing Benefit and Registered Providers must also follow the Rent Standard which sets requirements around how rent is set and increased.
Providers of supported accommodation where care, support and supervision is provided are classified as “Exempt Accommodation” (which is a subcategory of Specified Accommodation) and are exempt from Housing Benefit limits which then enables them to claim costs for Intensive Housing Management. The majority of the properties on Assetz Exchange are classified as Exempt Accommodation.
Furthermore, providers of beds that meet the criteria specialised supported housing (SSH), as most of our partners do, are exempt from the Rent Standard.
Types of inflation link
Each lease is entered into by separate negotiation with the partner in question, although for our larger partners the leases are often in a standard format and we have very little ability to negotiate a change in their terms.
Historically with inflation remaining low, the type of link drew little focus as annual increases were generally very small but the surge in CPI above 10% (and RPI above 13%) has drawn significant attention to the inflation link clauses in the leases of supported living properties.
The below table is a summary of the inflation clauses in existing leases with some of our existing partners:
| Partner | Inflation link |
| Golden Lane Housing | CPI |
| Nacro | CPI |
| Halo Housing Association | CPI + and amount as laid out by the RSH in the Rent Standard |
| Mears | CPIH |
| Harmony Children’s Services | RPI |
| Grow Hostel | CPI |
| Parasol Homes | CPI+1% |
| Turning Point | CPIH |
| United Response | CPI |
Key:
- CPI – consumer price inflation
- CPIH – consumer price index including owner occupiers’ housing costs
- RPI – retail price inflation
- RSH – Regulator of Social Housing
CPI, CPIH and RPI are published monthly by the Office for National Statistics and an explanation of the differences between the three indices can be found here.
The RSH set the Rent Standard as described above and while Halo Housing Association are exempt from following this standard, as providers of SSH, their board have deemed it prudent to do so in their leases, not least because adherence to it means approval of the rent level is more likely from the local authority.
Historically the Rent Standard has set rent increases to be CPI + 1% but following the announcement by the Chancellor of the Exchequer in the Autumn Statement that social rents increases should be capped at 7%, the Rent Standard for 2023/24 sets the increase in rent to be CPI + 1% but capped at 7% (see clause 3.5).
Rent Caps
Investors may have noticed that some recent property launches by Nacro and Golden Lane Housing have included caps on rent increases of either 5% (Nacro) and 7% (GLH). This is not something we have requested (and have pushed back on) but is a new blanket policy by both of these organisations to protect them from large increases in rents which could potentially be rejected by the local authority.
The majority of our partners rely on government support to pay the rent and if any increase is rejected by the local authority, the difference will have to be funded from the organisation’s own resources which may not be sustainable in the long run and so could result in a break clause being executed.
We are of course always acting in our investors interests but there is little we can do about any reasonable request in this regard, other than walk away from the opportunity.
Conclusion
Supported Housing is a complicated area with many pieces of overlapping legislation which can be hard to interpret. The Registered Providers that Assetz Exchange deal with provide specialised supported housing (SSH) which is exempt from Local Housing Allowance (LHA) and the Rent Standard but one of our partners chooses to follow it for rent increases and all are increasingly mindful about the impact of significant rent rises in the future.
The following diagram shows how Specialised supported housing fits into the Supported housing framework.
We hope this blog has proved useful, but as ever we are happy to hear feedback or answer any questions anyone may have. Please email any questions to helpdesk@assetzexchange.co.uk