Buying a National Rental Affordability Scheme (NRAS) property may seem like a good idea initially. After all, you gain access to several tax benefits.
Unfortunately, many lenders are wary about financing NRAS property buyers. Most will also not accept such properties as securities when you try to get a home loan. Let’s take a look at the NRAS in more detail.
What is the NRAS?
The NRAS is a scheme under which investors agree to offer low rents. Its aim is to help in the construction of new, affordable rental homes. Investors charge rents below the current market rates. In exchange, they often get tax benefits.
Usually, these lower rents are between a fifth and a quarter less that the current market rates. In addition, only NRAS-approved tenants can rent NRAS properties. Several consortiums oversee the scheme’s eligibility criteria.
Can Lenders Identify NRAS Properties?
The simple answer is yes. Several documents contain references to the NRAS status of the property. These include the building contract, contract of sale, and title search.
Lenders can also research the name of the consortium attached to the property.
Usually, one of the following four terms indicates a property is part of the NRAS:
• Head Lease
• National Rental Affordability Scheme
• Non-Equity Joint Venture Agreement
Investors should also look for such terms if they want to avoid NRAS properties.
Why Don’t Lenders Accept NRAS as Security?
Unfortunately, many lenders refuse NRAS properties altogether. Many don’t consider the NRAS tax benefits as suitable proof that you can repay a home loan. For investors, this leads to lower borrowing ability and limits portfolio building.
Despite this, there are some lenders that will accept NRAS properties as security on a loan. The bank will often want a specific consortium attached to the property. If you find the right consortium you may get a home loan.
Furthermore, your chances of getting a home loan increase if you want to borrow less than 80% of the value of the home. Some lenders may allow you to borrow more. Still, the lender will usually have strict requirements attached to such loans.
Again, you must find specific lenders. Thus, it is best to talk to an adviser to find out which lenders can help you.
What Makes Lenders So Wary of NRAS?
It all comes down to the limitations placed on NRAS homes. Buyers of NRAS rented homes must stick to the terms of the original lease. As such, they can only rent their new properties to others via the NRAS.
This makes the home harder to sell. A vendor can only advertise it to a small niche of investors. This shrinks the buying pool and makes the property tough to sell. Selling becomes impossible if there aren’t any NRAS investors available. It may also affect how much you can earn from the sale of the home.
This makes lenders wary about taking on an NRAS property as security for a home loan. You may have a better chance in areas where NRAS properties are in demand. Even so, investors should be aware of the possible pitfalls.
What Should I Do?
NRAS properties may offer some tax benefits for investors. Talk to an adviser to find out if these benefits would work for you.