Guidance

Private Rented Sector Housing Guarantee Scheme

Updated 7 March 2025

Applies to England

1.  Project Eligibility

1.1 The objective of the Private Rented Sector Guarantee Scheme is to provide loans that contribute to development of (or conversion to) purpose built homes for private rent in the United Kingdom.

1.2 On application, sponsors need to set out how the PRSGS loan will promote this objective.

1.3 Loans will fund projects that deliver new build or converted private rented homes

1.4 Minimum size of project: Total project to have a minimum value of £10m. However, the “project” can comprise more than one site, which cumulatively meet the minimum value requirement.

1.5 Units must be used for private rent for the period of the debt guarantee.

1.6 Applicants will need to detail how property and tenant management services will be provided.

1.7 Borrowers will need to be classified to the private sector, or a Private Registered Provider as defined in the Housing and Regeneration Act 2008 Section 80(3) (or equivalent in the Devolved Administrations).

1.8  Properties will need to be located in the United Kingdom.

2.  Financial Structure

2.1 Maximum loan/equity 80/20.

2.2  Applicants must demonstrate a minimum projected net rental income to interest cover ratio of 1.1:1 and an appropriate interest cover covenant will be included in the facility agreement set with headroom to the underwritten projections.

3.  Security and Recourse

3.1 First fixed charge over the project assets (and first floating charge over other company assets where a special purpose vehicle is used) including a formal assignment of rents.

3.2  Loan not to be greater than 80 per cent. of value, evidenced by professional valuation addressed for the benefit of the lender and guarantor. 

3.3 Minimum projected net rental income to interest cover must at all times be not less than: 1.1:1 and shall be subject to an appropriate interest cover covenant.

3.4  First fixed charge over additional approved assets if required to meet minimum debt/equity and interest cover ratio.

3.5 Annual revaluation obligations.

3.6 Security release permitted when asset cover exceeds 200 per cent., evidenced by professional valuation. 

4. Fees and Costs

4.1 Approved Borrowers will be required to meet the costs of arranging the relevant Guarantee, together with a Guarantor fee payable alongside each interest payment.

4.2 Approved Borrowers will also need to pay an administration fee to cover pro rata their share of the administration costs of managing and monitoring the facility.

5.  Covenants

5.1  Maintenance of loan to value and interest cover covenants.

5.2 Financial and property performance monitoring reports.

5.3  Standard financial and corporate covenants for long term secured debt facilities.

6. Documentation

6.1  Standard LMA based loan and security documentation to be entered into.

7.  Application

7.1  Borrowers will be required to complete a standard application form which will detail the information required to support the application.

7.2 All applications will be subject to full due diligence and approval prior to any offer of a debt guarantee being made. Any such offer will be at the complete discretion of the Guarantor. No offer nor commitment to provide a Guarantee is implied by the publication of these scheme rules. The Guarantor reserves the right to amend the scheme rules at any time.

Frequently asked questions (FAQs)

Note – These FAQs are intended to supplement the scheme rules.

Q1.  How do I apply?

The government has appointed PRS Operations Ltd, a subsidiary of Venn Partners LLP (trading as Venn), as delivery partner for the Private Rented Sector Housing Guarantee Scheme. Interested investors and borrowers should contact Venn (prs@venn-partners.com)

Q2. How are loans made before the scheme was reopened for applications in March 2025 affected?

The terms of loans already made before this date shall remain unchanged.

Q3. How long will the debt guarantees be available for?

Applications for the private rented sector debt guarantee must be received by 28 February 2028. The guaranteed funding will then be raised after the project is completed.

Q4. How long is the debt for?

The debt will be available for up to 30 years.

Q5. Is there a maximum size of debt?

A. There is no maximum debt size.

Q6.  Where is funding under the Scheme available?

A. Funding is available for projects in England, Wales, Scotland and Northern Ireland.

Q7.  What do you mean by “classified to the private sector”?

A. Borrowers must not be classified to the UK public sector. Furthermore, the guaranteed debt must not be classified to UK public sector debt.  The exception to this is that Private Registered Providers (i.e. registered non-Local Authority Housing Associations in England) shall remain eligible for the scheme, irrespective of any future classification.

Q8.  Does this finance cover the development period?

No.

Q9.  When is funding available from?

Loan applications will be considered for projects that have either completed construction and the building is suitable for occupation, or are partly or fully leased-up. The timing of funding for each loan shall be determined on a case-by-case basis by the lender.

Q10.  Are there any restrictions on the start or completion date of properties provided as security?

No  

Q11.  What about asset management flexibility? Can I substitute assets?

Substitution of secured assets will be considered by the lender on a case-by-case basis.

Q12.  If I sell on the portfolio/properties, does the benefit of the guarantee pass to the new owner, or do I have to repay early?

Loans will contain change of control provisions governing this in the context of a share sale during the term of the loan. If properties that are the subject of an application are sold before having been funded, then the purchaser may utilise the application but would be subject to the same loan underwriting standards as any other loan.

Q13.  Are conversions from other uses, such as offices, eligible for the scheme?

Yes. Projects involving conversion from commercial to residential units for rent will be eligible under the scheme as they will provide additional housing units.

Q14.  Are there types of properties that are not eligible for funding?

Yes, specialist supported housing is excluded and other property types will be decided on a case-by-case basis.

Q15.  What do you mean by minimum value in rule 1.4? Is this the transactional value or the gross development value?

This is the PRS investment value, based on a PRS investment valuation as evidenced by professional valuation, as opposed to the ‘break-up’ valuation. This valuation also applies to scheme rules 2.1 and 3.2.

Q16.  I’m a developer, who would also like to be the long term PRS investor. Can my equity contribution be funded from my developer’s profit?

If the developer is also the investor, the developer/investor will still only be able to access an 80% loan to value loan at the maximum. The equity funding will need to come from the developer/investor, whether it comes from development profits or other sources. The minimum security requirements at 3.2 and 3.3 must still be met.

Q17.  My projected rental income to interest cover ratio will be lower than usual until the building is fully let, are there any mitigants required for this in the loan?

The loan may be drawn down pursuant to scheme rule 1.4, before the scheme is fully let, and any lettings risk will be covered using the same methods used by development debt financiers e.g. guarantees, cash collateral. The amount of such assurance will depend on each specific scheme and the expected lettings period.

Q18.   Are there any interest reserve requirements?

Any reserve required and the precise level thereof will be determined on a case-by-case basis.

Q19.  Will there be an application fee? If so, how much will it be and when will it be payable?

The Lender may opt to charge an application fee as part of the arrangement fee on a case-by-case basis. The application fee will be an upfront fee payable at the point of initial approval of the loan and, if charged, it will be offset against the arrangement fee payable on loan utilisation. This application fee will range from £5,000 up to a maximum £25,000 depending on the size of the loan approved (calculated on the notional amount of the approved loan and subject to the £5,000 floor and £25,000 cap).  

Q.20.  How are the administrative costs of operating the scheme covered?

The administrative costs of the scheme are passed onto borrowers on a pro-rata basis, and may vary over time, depending for example on the size that the scheme achieves.

Q21.  Are there any costs associated with pre-paying a loan?

If a loan is ‘match-funded’ through the issuance of Government guaranteed bonds, any pre-payment under that loan will need to be sufficient to pay the pre-payment amount that will become due on the bond. This amount includes a make-whole for future interest that would have been due until the scheduled maturity of the bond – this is known as ‘spens’ in the bond market.

Q.22.  Will there be a requirement for a borrower under the scheme to establish any reserve amounts?

Yes. In addition to any interest reserve account each borrower will be required to set up both a capital expenditure reserve account (to meet forecast and additional expenditure on the asset) and a sinking fund account (to meet any shortfalls or additional requirements in respect of facility covenants such as loan to value and interest cover ratio covenants).