Rent To Buy Property Explained

What is Rent To Buy?

Rent to buy, also known as rent-to-own, gives people the chance to rent a property with the chance to buy it at a later date. This is a government initiative set up to help people save up the deposit for a home in England or Wales (note: there is a separate scheme for London called London Living Rent). Rent to buy is not available in Scotland, although there are several alternatives to help first-time buyers.

Whether you’re a first-time buyer or struggling to secure a mortgage, the rent to buy scheme could set you on the path to home ownership.

How Does Rent To Buy Work?

Rent to buy houses are usually new builds and are offered through the government scheme for rental at roughly 20% below the usual market rate. People live as tenants in the property for up to 5 years, after which time they can use the money saved on discounted rent for a deposit to buy their home. This may involve a fixed purchase price or a formula for determining the purchase price at the end of the rental period.

Rent to buy arrangements can vary depending on the housing association or developer offering the scheme. First, the tenant enters a standard lease agreement, in which they agree to the rental period length and the terms for purchasing the property at the end of this period. While they live in the property, they can save up money towards the deposit, improve their credit score, and even build up equity in the property. In some rent to buy schemes and through the rent-to-own scheme in Wales, a percentage of the rent paid goes towards the purchase price of the property. You can also use the rent to buy scheme to buy a house with shared ownership, reducing your deposit and mortgage further.

Who Is Eligible For The Rent To Buy Scheme?

You are eligible for the rent to buy scheme if the following criteria apply:

Your household earns less than £60,000 per year
You are a first-time buyer*
You are in full or part-time employment

*You may also be eligible for rent to buy if you are returning to home ownership after the breakdown of a relationship.

While a bad credit score does not necessarily exclude you from the rent to buy scheme, it may affect your eligibility with certain local authorities or housing associations. If you access the rent to buy scheme through a local housing association, they may add other criteria, such as local links to the area.

Benefits Of Rent To Buy

The main advantage is that the money you spend on rent is reduced, and you get the chance to save up for a deposit to buy the house.

You can also get the chance to buy a property that you would otherwise not be able to afford.

You can even save more money by buying the house through the Shared Ownership scheme.

Another advantage is that you get the first chance to buy the house, so you don’t need to worry about another buyer taking it from under you.

Also, by living in the house first, you can get a good idea of what the property and local area is like, and if you want to continue living there.

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Cons Of Rent To Buy

Rent to buy is a long-term commitment. If your financial circumstances change, you may not be able to afford the property at the end of your lease. If you can’t make rent payments or break any terms of your lease, you may not be allowed to stay in the scheme.

Some local authorities may prioritise certain groups for the rent to buy scheme, such as those with disabilities, or people looking to buy homes through shared ownership only.

You will still need to cover other costs associated with renting and buying a property, such as a deposit, conveyancing, getting a survey done, and legal fees.

If house prices rise significantly during the lease period, you still may not be able to afford to buy the property if there was no fixed purchase price in the initial agreement. Note: in Wales, the rent to own scheme gives you back 50% of any price increase back to help out with this.

Properties available in the rent to buy scheme are extremely limited, and in some areas, you may even have to join a waiting list. This means that you might not get a lot of choices for houses in your area.

How To Apply For The Rent To Buy Scheme

You can apply for the rent to buy scheme by first checking your eligibility at https://www.gov.uk/rent-to-buy. You can search by your local area to find organisations that offer rent to buy homes at https://www.shared-ownership-scheme.service.gov.uk/find-organisations-selling-shared-ownership-homes.

In Wales, you can access the rent to own scheme at https://www.gov.wales/rent-own-wales-participating-landlords

In Northern Ireland, go to https://www.co-ownership.org/rent-to-own/about-rent-to-own/.

If you are interested in going ahead with the rent to buy scheme, always check the exact terms in the agreement first before signing, as it may vary a lot depending on who is offering the scheme. If rent to buy is not for you, consider other options like shared ownership or a guarantor mortgage.

Can Landlords Use The Rent To Buy Scheme?

In short; yes, but not in the same way as first-time buyers. Private landlords can offer the rent to buy scheme to their tenants. Many landlords use the rent to buy scheme to expand their rental portfolio and offer their tenants the chance to buy the property from them after the lease expires. This can be lucrative for all parties involved.

While there are still costs associated with rent to buy, and the choice of properties can be limited, this scheme is still a great option for young people and first-time buyers to get on the property ladder and stop throwing money away on rental properties with no equity. As always, sift through your options before committing and seek professional advice if you aren’t sure how to proceed.

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