How the model works
The Scottish Government, with support from the Scottish Futures Trust (SFT), developed the original NHT model for councils and developers.
This model leverages in private sector funding and council borrowing to support the delivery of homes for intermediate rent. Developers build the homes to agreed standards and timescales. Limited Liability Partnerships (LLPs) are set up to oversee progress on each developer's site within a council area. The members of the LLP are the council, the developer and SFT. Once complete, the homes are purchased by the relevant LLP.
The LLP pays between 65% and 70% of an agreed purchase price to the developer up-front. This contribution is funded by participating councils who provide loans to the LLPs in their area. This is primarily through on-lending borrowing which has been raised from the Public Works Loan Board (PWLB). The remaining 30% to 35% of the purchase price is contributed by the developer as a mixture of loan funding and equity investment.
Homes are expected to be available to tenants at an intermediate rent for five to 10 years. The developer puts in place an agent(s) to manage the homes and to carry out maintenance and repairs to agreed customer service standards. Managing agents allocate homes to tenants based on criteria agreed with the council.
Each LLP's income from tenants' rents will be used to pay interest to the council so it can finance its own borrowing for the initiative and will also pay interest on the loan from the developer and pay for agents responsible for managing and maintaining the homes. The Scottish Government provides a guarantee to participating councils that it will cover capital and interest payments due to the PWLB if the LLP is unable to pay what it owes to the council.
The developer can trigger the sale of the homes between years six and 10. The sales proceeds will be used firstly to repay the council’s loan to the LLP and then to recoup any calls on the Scottish Government guarantee. This is before the developer receives any repayment of equity capital (up to a capped level).
Delivering the original model
Contracts have been signed with developers to build over 1,600 affordable homes for rent in Aberdeen, Clackmannanshire, Dumfries and Galloway, Dundee, Edinburgh, Falkirk, Fife, Highland, Scottish Borders and Stirling. Hundreds of households are already enjoying living in their new homes.
Additional information is available on the SFT website.