2.1.1 This section describes the Agency’s requirements in relation to the rents to be charged on grant-funded Affordable Rent schemes.
2.2.1 The maximum rental level for AR should be no more than 80% of gross market rent (inclusive of service charges). In assessing whether the rent is no more than 80% the individual characteristics of the property must be taken into account, such as its location and size.
2.2.2 RPs will be expected to maximise their financial capacity, by charging rents at or as close as possible to 80% of market rents, to add to new supply.
2.2.3 For both new supply and conversions RPs will be required to assess the market rent (using the definition of the International Valuations Standard Committee as adopted by the Royal Institute of Chartered Surveyors) that the individual property would achieve and set the initial rent at up to 80% of that level (inclusive of service charges).
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The Regulator has issued an explanatory note on RICS approved valuation methods which is contained in Appendix 5 of the Regulatory Framework.
Please note that this document contains information produced by RICS, which could be subject to change.
In particular it is worth noting that for valuation purposes the appropriate lease terms will normally reflect current practice (e.g. 12 month fixed term assured shorthold tenancy) in the market in which the property is situated, not the individual terms of the tenancy in question.
2.2.4 Housing for vulnerable and older people, and extra care housing often includes a range of services to support the particular needs of the client group. For this type of property the market rent comparables (including service charges) should be based on similar levels and types of service provision available in that area. Where there are insufficient or no comparables for similar types of provision in the local area, valuers should be requested to identify comparables from other areas, or give their best view of the market rent (inclusive of service charges) that would be applicable in the location in which the property is situated or use an alternative valuation method, setting out their justification. RPs should then set the initial rent at up to 80% of that level.
2.2.5 Exceptionally rents may exceed 80% of market levels in areas where an Affordable Rent would otherwise be lower than the target rent for the property. The target rent therefore constitutes a ‘floor’ for the rent to be charged. However RPs will be required to document such decisions together with supporting evidence for audit purposes.
2.3.1 In order to maximise their financial capacity the Agency expects RPs to set rents at up to 80% gross market rent. Where in specific circumstances RPs can demonstrate it is appropriate to set rents at less than 80% of gross local market rents whilst still meeting local needs and delivering value for money they will be required to discuss such cases with their Agency lead investor team. Examples where it might be appropriate could include:
2.4.1 Homes let on AR terms will not be subject to the rent restructuring policy for social rented housing as set out in the Regulator’s Rent Influencing Regime Guidance (RIRG). For further information, please see the Tenancy Standard.
2.4.2 In order to provide protection and certainty for tenants, providers and funders, the maximum annual AR increase will be Retail Price Index + 0.5%. RPI will be taken as at September of the previous year.
2.5.1 RPs will be required to rebase the rent on each occasion that a new AR tenancy is issued (or renewed) for a particular property; and ensure that the rent remains at no more than 80% of gross market rent (inclusive of service charges) as of the date the property is re-let – even if this means the new rent is lower than the rent previously charged.