Rent Setting Policy
2015-2016
Rent Setting & Service Charges Team
-------------------------------------------------------------Effective date: April 2015
Review date: December 2015
Approved: 24th November 2014 East Thames Board
Author: Head of Customer Accounts
CONTENTS
PAGE
Scope
2
Policy statement
2
Rent setting aims
2
Key Principles for General Needs and Supported Housing
3
Fair rent
5
New Lettings and Relet
5
Appeals
6
Shared Ownership
7
Market Rent
7
Intermediate Rents
8
Affordable Rents
9
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Rent Setting Policy
2015-2016
1.
Scope
1.1 This policy covers rent setting arrangements for all properties owned by East
Homes both those managed directly by East Homes or its approved agents,
Affordable Rents, Shared Ownership, Market Rent, Intermediate Rent (inclusive of
Rent Now Buy Later).
1.2 For the avoidance of doubt, the homes directly affected are all general needs,
affordable rents, supported housing, foyer, shared ownership, market rent,
intermediate rent inclusive of rent now buy later and those managed by other RSL’s
who have an agreement or lease to manage dwellings on its behalf.
2. Policy statement
2.1 It is the policy of East Homes to set its rents in accordance with the
Government’s direction to the regulator of May 2014, Capital Grant Funding guidance
and in accordance with individual Leases. East Homes is committed to operating
within the key requirements set out in the Rent Standard Guidance and reviews its
policy annually to ensure that we observe its requirements.
3. Rent Setting Aims
In setting rents, East Homes will ensure that it:

Sets its rents according to the Rent Standard so that rent charged do not
exceed formula rent and capped rent.

Applies rent increases that, where applicable, do not exceed the Guideline
Limit.

Delivers efficient use of subsidies to produce the maximum number of
homes. Applies additional “values” to properties where Decent Homes
work has been carried out.

Reflects current market rents using combined average rents from external
independent sources

Applies additional “values” to properties with added value attributes such as
parking and private gardens for flats or negative “values” such as a poor or
unsightly views

Applies additional “values” to properties where communal service charges are
considered to be over and above those generally delivered such as 24 hour
concierge and CCTV

Reflects affordability criteria to not exceed 45% of Total Net Income or
£225.00 per week for Affordable rents

Applies increases in accordance with leases
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
Builds up reserves to cover future maintenance liabilities for properties and
improvements to our stock.

Maintains adequate financial reserves to ensure the financial well being of
the Association.

Makes sufficient trading surpluses to meet the requirements of lenders

Maximises income collection and minimizes bad debts.
4. Principles for general needs and supported housing
4.1 Formula Rent
4.1.1The calculation of a formula rent is based on a pre-set method within the
previous rent policy introduced in April 2002.
The formula rent is calculated using the following considerations:

30% of a property's rent should be based on relative property values;

70% of a property's rent should be based on relative local earnings;

a bedroom factor should be applied so that, other things being equal,
smaller properties have lower rents.
4.1.2 This statement can be expressed as a formula, in which the target rent for a
property, after the completion of the restructuring period, is calculated using the
following;
weekly rent is equal to:
70% of the average rent for the sector (LA or RSL)
multiplied by relative county earnings
multiplied by bedroom weight
plus
30% of the average rent for the sector (LA or RSL)
multiplied by the relative property value
4.1.3 Supported Housing - non self-contained units
Where a scheme is of non-standard design and hence not possible to value using the
existing use valuation method, a depreciated replacement cost can be used in place of the
existing use valuation. This is calculated using a formula published in the supported
housing valuation guidance produced by the TSA which uses the following data;



Square meterage of property- to calculate the assumed build cost
Area of the total land occupied (i.e. including grounds, gardens etc.)
Local Authority area
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


Relative Earnings
Number of units self-contained or shared
Adjusted by :
Adaptations
Lifts
Central Heating
Baths and Kitchens more/less than 10 years old
4.2 Rent Flexibility Level
Once a formula rent has been calculated, there is the flexibility to set rents at up to
+5% of the formula rent. For supported housing, the flexibility is +10% of the formula
rent.
4.3 Rent Caps
East Homes continues to ensure that no rents breach the rent caps set by the
Government. Rent caps are increased annually by CPI (at September of the previous
year +1.5%. For 2015/16 , formula rent caps are outlined below:
Bed-sit and one bedroom properties
Two bedroom properties
Three bedroom properties
Four bedroom
Five bedroom
Six bedroom and larger properties
£141.43
£149.74
£158.06
£166.37
£174.69
£183.00
4.4 Rent Increase.
Rents for General Needs and supported Housing will increased by no more than CPI (at
September of the previous year +1% from the first Monday in April.
For 2015/16 rents will be increased by 2.2% and effective from 6th April.
5. Fair rent tenancies
5.1 An application for registration of a fair rent will be made to the Independent
Valuation Office Agency. At the time a registration is due, the Team Manager (Rents)
will decide whether an application should be made based on the current registered
fair rent and the equivalent formula rent. The amount applied for will be decided by
the Team Manager (Rents) and reviewed on a quarterly basis.
5.2 If the re-registered rent is above the formula rent for the property, the Association
will charge the formula rent rent or the Assured rent for a similar property in the same
post code, if applicable. If the re-registered rent is lower than the formula rent, the
re-registered rent will be charged. If the rent is capped at the (enhanced) formula or
assured rent level, this will be reviewed on the anniversary of the new charge.
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5.3 Fair rents are registered every two years and will be increased on the anniversary
of the registration effective date, after 28 days notice has been served on the secure
tenant. In the case of properties that have had improvements, an application for reregistration of rent will be made as soon as works are complete, even if this is earlier
than the second anniversary of the registered rent.
5.4 Tenancies in Registered Care Homes will receive an increase to the bed space
charge as per CRAG (Charging for Residential Accommodation) published levels of
income support.
6. New Lettings and Relets
6.1 Rents for re-lets will be set at the enhanced formula rent and reviewed the
following April.
6.2 Where properties have been returned to management following major repairs the
rent is to be set at the enhanced formula rent
6.3 Where the Association has been awarded grant for the purposes of building new
homes and the rent levels agreed by Board and the funding body during the scheme
approval vary to those in the local area, the Association will commence the tenancy
at the rent levels agreed during the scheme approval, unless authorised by Board to
introduce an alternative starting rent.
6.4 Where the Association intends to carry out major works and the current residents
are temporarily decanted into another East Homes property until the works have
been completed, rents as at the transfer date will be frozen by way of a decant
allowance. Rents for the former property will continue to increase year on year with
the decant allowance increasing by the same amount. At the time of transfer into the
refurbished home the decant allowance will cease and the increased rent applied.
6.5 The Association started to re-develop New Union Wharf with work commencing
in October 2013. Where tenants living in a block that is or has been next in line for
demolition and re-housing has been or will be within the estate on a temporary basis,
decant allowances will be applied in line with the commitment between the
Association and existing tenants. All decant allowances will fall away and the
increased rent applied once the tenant is re-housed permanently in a new home.
Where tenants have moved away from NUW but later exercise their right of first
refusal and accept an offer of a new home within the estate the rent for the new
home will be calculated in the same manner had they remained or been temporarily
re-housed within NUW.
7. Appeals
9.1 Assured and Fair Rent Tenants, where their tenancy agreement refers to Section 13
(1b) of the Housing Act 1988, have the right to appeal to the Residential Property
Tribunal Service, who will determine the maximum rent to be paid. Their decision is
binding on both sides. The Residential Property Tribunal Service, no longer have the
jurisdiction to determine as service charges.
8. Shared Ownership Rents
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Shared Ownership residents buy a percentage of their property with a personal
mortgage and are charged rent on the remaining equity of the property value in
accordance with individual agreements and scheme approval.
8.1. Formula for calculating shared ownership rents
The agreed rental percentage, in accordance with scheme approval, is applied to the
outstanding equity of a property purchased as Shared ownership. For example:
Outstanding equity
2.5% =
Monthly rent =
£48,000.00
£1,200
£100
8.2 Staircasing for shared ownership properties
8.2.1 Shared owners may staircase during the year by purchasing an additional
percentage of their existing property, this additional share can be up to 100% of the
value of the property, 75% for Fixed Equity Shared Owners.
8.2.2 When a Shared owner increases the percentage of the property they own, the
rent is reduced accordingly by uplifting the original rental percentage, mainly 2.5%,
by annual inflationary increases during their tenure and applying to the new
remaining equity figure.
8.2.3 When a Shared owner staircases to 100% no further rent is applicable.
10.3 Downcasing for shared ownership properties
8.3.1 Shared owners, fulfilling the agreed criteria, may downcase during the year by
selling back a percentage of their existing property to East Homes.
8.3.2 When a Shared Owner decreases the percentage of the property they own, the
rent is increased accordingly by uplifting the original rental percentage, mainly
2.75%, by annual inflationary increases during their tenure and applying to the new
remaining equity figure.
8.4 . Shared ownership and leaseholder appeals
8.4.1 Leaseholders have the right to Appeal to the First-tier tribunalfor service
charges only.
9. Market rent related rents
Market rent levels, or a percentage thereof, inclusive of communal service charges,
are applied to Market rent properties, Intermediate rent properties including Rent
Now Buy Later properties and Affordable rent properties.
9.1 Formula for calculating market rents
9.1.1 Initial rents for these properties are calculated using current Market Rent
information by property type and postcode using a RICS approved methodology
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based on independent information about comparative rent levels and the following
three aspects of valuation:
9.1.2 The average Market Rent is enhanced where independent assessment shows
that features add value to a property. These features are:










a flat which has its own private garden
a flat which has access to a communal garden/shared roof garden
a property which has off street communal and secure parking
additional bedspace where property has two double beds compared to one
double and one single bedroom
a property with room(s) in excess of 15 square meters
a flat which has self-contained access
a property with a separate and secure utility room
a flat with a balcony
a property with en-suite bath or shower room
a flat on 4th floor or above
9.1.3 The Market Rent is decreased where independent assessment shows that
features decrease value to a property. These features are:









a flat with no parking
a property with poor or unsightly views/insufficient light
a property with intrusive noise
a property with a box room less than 5.9 sq meters
all single rooms
a property where white goods are not included
a property with an open plan kitchen
flat on 3+ level without lift
ground floor flat within clear line of sight from pedestrians
9.1.4 The Market Rent is enhanced where communal service charges are considered
to be over and above those generally delivered. These service charges are:







communal heating
block water supply
CCTV
Electronic gates
Concierge
Gym
Communal service charges delivered by a Managing Agent
9.1.5 A market condition percentage is applied to the figure generated from above
process, where applicable, for the difference between advertised Market Rents on
the average actually being charged by local providers.
9.2 Re-lets
Where a property becomes vacant, the existing average market rent level will be
revisited and compared to current market rent levels for a similar property in the
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same postcode. Thereafter the rent will be adjusted by the current market condition
factor.
10. Intermediate rents
10.1 Intermediate rent properties, including Rent To Buy properties, are let on
Assured Shorthold Agreements at sub- market rent levels in accordance with
individual agreements and scheme approval. Rent to Buy units are originally Shared
Ownership units that are being let on intermediate market rents due to market
conditions at the time of hand over. Units are expected to be sold within five years.
Initial rents for these properties are calculated using the formula for calculating
market rents. A reduction of 20% (or different if agreement and scheme approval
states otherwise) is applied with further reductions made where appropriate, see
below:
Additional 5%
Additional 5%
Additional 5%
Additional 5%
Poor Location
Lack of schools
Shops
Transport
10.2 The Intermediate Rents built with Challenge Funding are subject to capping and
specified rent increase levels.
10.3 Relets
10.3.1 Where a property becomes vacant, the existing average market rent level will
be revisited and compared to current market rent levels for a similar property in the
same postcode. Thereafter the rent will be adjusted by the current market condition
factor, if applicable, applying the original Intermediate Rent reduction. Where the
property is part of a block where other Intermediate Rents are in place and where the
revised rent is lower, the relet will be at the current rent charged.
11 Affordable Rents
11.1 Affordable rent properties are let on Lifetime Assured Shorthold
Agreements or Fixed Term Assured Shorthold Agreements (for a fixed term of
10 years inclusive of first year probation) at sub- market rent levels in
accordance with individual agreements and scheme approval.
11.2 Initial rents for these properties are calculated using the formula for
calculating market rents.
In determining affordability, the Group set parameters when the scheme was
introduced (2011). Specifically, the Group agreed that a rent will be
‘affordable’ if it:


is no higher than 80% of the market rent
does not exceed 45% of Total Net Income based on 25th centile for the
borough in which the dwelling is situated (see 11.2.1 below)
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
is less than £225.00 per week (45% of the Government’s stated £500 cap for
weekly benefits - see 11.2.3 below).
11.2.1 Total Net Income is a combination of the following factors:

Annual net income inclusive of net income based on:
Average Gross Weekly Pay (25th percentile) from ASHE for all employees
within the borough the property is in, data sourced from Government released
figures in 2013
Gross weekly income is then converted to net weekly income by using the
calculator from www.incometaxcalculator.org.uk, plus:

Working Tax Credits and Child Tax Credits based on:
Net annual income and number of bedrooms, plus:

Child Benefits based on:
Number of dependent children
11.2.2 The Market Rent is then reduced by the percentage required to ensure
that it does not exceed 45% of Total Net Income, in compliance with the
general acceptance in the Capital Funding Guide of 45% Cap in London,
capped at 80% of Market Rent if applicable.
11.2.3 In recognition of the proposed Government total benefits cap of £500
per week for a family, Affordable rents have been capped at £225.00 per
week based on 45% of £500.
11.2.4 For Affordable Rent re- let to the same tenant as consequence of their
probationary tenancy coming to an end East Thames will not re-set the rent.
The rent will be subject to an annual increase of CPI +1%.
11.3 Relets
13.3.1 Where a property becomes vacant, the existing average market rent level will
be revisited and compared to current market rent levels for a similar property in the
same postcode. Thereafter the rent will be adjusted by the current market condition
factor, if applicable, applying the original Total Net Income affordability reduction,
capped at 80% of market rent and/or £225.00 per week.
11.4 Funding conditions
11.4.1 In some cases, a funding body may have provided funding on condition that
future rent levels are set within specific parameters. Under such conditions, the
Association will comply with these conditions and they shall take precedent over the
target rents set for other stock in the area and not affected by such conditions.
11.4.2 Where homes are built to specific funding conditions they shall be dealt with
on a scheme by scheme basis and reported separately to Board and other
stakeholders that require the information.
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12. Review of Social Rent Plan, Shared Ownership, Market Rent Related
and Housing Association Leasing Rents
12.1 The Association’s rent plan, Shared Ownership and Market Rent Related rents
will be reviewed annually by officers who will make recommendations to all
appropriate Boards, after appropriate consultation. The review will take account of
the relationship between operational costs and the progress being made towards the
implementation of our Rent Plans. The plan will include a progress report and any
amendments made to the plan over the previous year.
Policy controls sheet
Date of last review, who reviewed and Main changes and why (i.e. change in
date approved
legislation, change in internal
processes)
Reviewed in October 2014 by Head
Annual Rent Review 2015-16
of Customer Accounts, approved by
East Homes Board on ……..
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