When it comes to renting out property, landlords generally look for stable income, minimal hassle, and, ideally, tenants who’ll respect the place and stay for a while. But with the cost-of-living crisis and increasing demand for affordable and secure housing, a new option has emerged for landlords: working with social housing schemes, specifically those run by big names like Serco and Mears. These schemes come with both unique perks and financing challenges, which can impact cash flow, borrowing options, and how you manage the property in the long term.

Let’s take a deep dive into how Serco and Mears Schemes operate, their advantages, and the pitfalls landlords need to be aware of—especially if you’re considering taking out or renewing finance.

Social Housing: Serco and Mears Schemes: What Are They?

Serco and Mears are private companies working on government contracts to provide housing for those in need—primarily asylum seekers under the UK government’s Asylum Accommodation and Support Services Contracts (AASC). Under these schemes, landlords lease their properties to Serco or Mears, which then sublet the property to tenants as part of the asylum support program. The aim? To provide secure, compliant housing for vulnerable individuals while offering landlords the promise of regular income and lower day-to-day property management needs.

However, these benefits come with conditions. Properties must meet specific standards, the leases are long-term, and you’re often locked into fixed arrangements. And then there’s the financing issue…

The Advantages of Working with Serco and Mears Schemes

For landlords open to social housing, schemes run by Serco and Mears offer a few significant upsides:

• Guaranteed Income Stream

One of the biggest draws is the promise of consistent rental income. Whether the property is occupied or not, you’ll receive payments regularly as part of the government-backed contract. No more gaps in rental payments due to tenant turnover or vacancies—your monthly income is secured, which can be a game-changer for financial planning.

• Long-Term Leases

Social housing schemes typically offer leases between 3 to 10 years, providing landlords with a dependable, long-term agreement. This can be very attractive for landlords used to short-term lets, especially if you’re trying to avoid frequent tenant turnover or the hassle of renewals.

• Low Maintenance Responsibility

Serco or Mears handle the majority of property management—maintenance, repairs, and inspections. They ensure the property meets the required standards and, if necessary, make the necessary repairs. For landlords looking for a hands-off investment, this means fewer day-to-day headaches.

• Minimal Voids

Void periods are practically non-existent since these properties are continuously occupied as part of a government contract. This keeps income steady, eliminates advertising costs for new tenants, and reduces wear and tear from frequent tenant changes.

• Recession-Proof Revenue

Social housing demand doesn’t drop during an economic downturn. So, by aligning with government-supported housing, landlords have a steady revenue stream regardless of economic changes.

Challenges Landlords Face with Serco and Mears Schemes

On the flip side, it’s not all smooth sailing. Financing these properties can be tricky, as can managing the limitations of long-term social housing leases. Here’s what landlords need to know.

Limited Mortgage Options

• Issue: Not all lenders will finance properties intended for social housing. Many mainstream lenders steer clear due to perceived risks or their standard requirements around tenancy terms.
• Solution: You may need a specialist lender that understands social housing arrangements. However, these mortgages often come with higher interest rates, stricter terms, and larger deposits, which can impact your overall returns.

Property Valuation Complications

• Issue: Lenders may offer a reduced valuation due to the narrower resale market when valuing properties used for social housing. This lower valuation can affect borrowing potential, which could be a hurdle if you want to remortgage or expand your portfolio.
• Solution: Work with a broker who knows the social housing market. They can help find lenders who recognize the stability of long-term leases and might offer better valuations. Remember, though, the specialist market is smaller, so expect fewer options.

Mortgage Covenant Restrictions

• Issue: Mortgage agreements often include restrictions on how properties can be used. Renting out a property for social housing can violate these covenants if the mortgage was originally taken out for private rentals.
• Solution: Check your existing mortgage terms carefully, especially if you’re considering converting a buy-to-let property to a social housing lease. Some landlords unknowingly breach contract. Refinancing with a lender who allows social housing can be an option, but it might mean higher costs.

Larger Deposit Requirements

• Issue: Lenders who do work with social housing schemes may request a higher deposit due to the perceived risks involved.
• Solution: Prepare to front a larger initial deposit or keep an emergency fund. This may be especially necessary if you’re remortgaging an existing buy-to-let property into a social housing scheme.

Specialist Insurance Needs

• Issue: Social housing properties often require additional insurance, which can be costlier due to higher perceived liability or added requirements for covering government contracts.
• Solution: Get quotes from specialist insurance providers who understand social housing risks. Working with a broker who can find comprehensive coverage at a reasonable price may save you money in the long term.

Contract Termination Risks

• Issue: Serco and Mears contracts are tied to government funding and may not be renewed. Without renewal, you could lose the guaranteed income or need to quickly find new tenants, which can disrupt cash flow.
• Solution: Stay informed about the contract’s renewal process and have a contingency plan. If the contract ends, have a network of letting agents or a strategy for converting the property to a private let if necessary.

Is Working with Serco and Mears Worth It?

Whether these schemes suit you depends on your priorities and risk tolerance. If you value steady income and lower management demands, Serco and Mears schemes might be an ideal fit. However, the financing challenges mean it’s crucial to go in with eyes wide open. Here are a few takeaways for landlords thinking of signing up:

Get Specialist Mortgage Advice

• Use a mortgage broker experienced in social housing finance. They can offer insights into which lenders are most flexible and any potential costs and conditions to be aware of.

Budget for Additional Costs

• Higher deposits, specialist insurance, and potential legal fees if you need to amend covenants or refinance can add up. Factor these into your financial planning to avoid surprises down the line.

Consider a Financial Buffer

• Building up a financial buffer or emergency fund can help you navigate gaps if a contract ends suddenly or if refinancing becomes necessary and takes longer than expected.

Check the Small Print

• Ensure you fully understand the terms in the lease and the contract with Serco or Mears. Knowing what’s expected of you as a landlord—and what’s not—can prevent disputes and keep your property profitable.

Final Thoughts: Balancing Pros and Cons in Social Housing Investment

Social housing contracts with Serco and Mears offer landlords a unique opportunity to earn steady, government-backed income with less management responsibility. Yet, financing these tenancies is a specialist area, with a limited pool of lenders and stricter mortgage terms. With a well-structured approach and by choosing a trusted mortgage broker and insurance provider, you can navigate these challenges and add a reliable source of income to your property portfolio.

As always, due diligence is key: double-check contract terms, understand your financing options, and weigh the potential return against the initial effort involved. For landlords seeking a hands-off investment and who are comfortable with the constraints, social housing contracts could be a rewarding option.

For more details and tailored advice on arranging finance on Serco and Mears schemes, we encourage you to reach out to our knowledgeable team. Simply call our office at 0333 335 6595 or message us to speak with a member of our dedicated commercial team.