Everything You Need to Know About the Rent to Buy Scheme
Rent-to-Buy is a scheme that, as the name suggests, allows you to rent a home and then buy it. Here’s more about what rent to buy is and how it works.
What Exactly is Rent to Buy?
Rent to Buy is one of a number of homeownership schemes that are endorsed by the Government. It is designed to enable people to rent a home for a period before buying it, and to save for a deposit in the meantime.
Rent to Buy recognises the fact that some people who rent want to buy a home and can afford to buy. But because they are paying rent every month they find it hard to save for a deposit.
Rent to Buy allows buyers to rent a property for up to five years at a discounted rent. At the end of the rental period, you can then buy the property. The idea is that the money you have saved in rent over the renting period can be put towards a deposit to then buy the property.
Rent to Buy comes under several different brand names. These include rent to own, rent to save, rent-save-buy, intermediate rent, try before you buy or in London, London Living Rent.
- In Wales Rent to Buy is known as Rent to Own – Wales and works in a slightly different way.
- In Northern Ireland Rent to Buy is known as Rent to Own and again is different to other parts of the country.
- Here is more information about the different schemes which operate in Scotland.
The Advantages of Rent to Buy
The main advantage of Rent to Buy is that it allows renters to become owners and save for the deposit while they’re renting. It gives tenants certainty that they can buy the house they are renting and stay living there.
Rent to Buy means that the money you pay in rent isn’t entirely dead money. It is contributing indirectly towards the purchase of a house you will eventually own.
The Disadvantages of Rent to Buy
Rent to Buy is a long-term commitment. If your plans or circumstances change during the Rent to Buy period you may be unable to buy the property.
With Rent to Buy, you will usually buy the property at its value when you actually buy it and not at its value when you begin renting it. So if prices go up between now and when you buy your property it could cost you more than you expected.
Rent to Buy might not necessarily be the best or cheapest way into homeownership depending on your personal circumstances.
Rent to Buy isn’t available on every property nor in every area.
If you buy a property as a rent to buy it may not always be easy to sell it if you want or need to compared to a property which you buy outright. If, for example, you buy on a shared ownership basis.
How Rent to Buy Works
Rent to buy schemes can vary but with rent to buy you typically rent a home for up to five years. There is usually a discount on equivalent local market rents of 20% during that period.
After a minimum period (at least six months or a year usually) you have the option to buy the house. You may be able to buy it outright but shared ownership schemes, where you buy a share and rent the rest, are also usual. Some schemes may offer cashback.
After a maximum of five years, you may have to buy the house or move out. It is not always possible to extend the rental period beyond five years.
A Rent to Buy property has a purchase price of £250,000 and a monthly rent of £1,200 which is 80% of the local market rent of £1,500.
You rent the house for 5 years paying £1,200 PCM and save the £300 rental discount in a savings account. After 5 years you have saved £18,000. You use this as a deposit and take a mortgage of £82,000 with which you buy a 40% share of the house and continue to pay rent on the rest.
Who is Eligible for Rent to Buy?
Rent to Buy schemes come with some conditions which can vary from scheme to scheme.
It’s important to bear in mind that Rent to Buy schemes aren’t really aimed at those who can’t afford to buy a property. They are aimed at those who can afford to buy but can’t get the deposit together because they are renting. If you can’t afford the mortgage once you buy the property Rent to Buy isn’t for you.
Your household income normally needs to be under a maximum, such as £60,000 but sometimes more.
You often need to be a first-time buyer, although there can be exceptions to this.
There may be other conditions, depending on the scheme. For example, you may need to be a housing association tenant or have a local connection.
Rent to Buy is intended for those who intend to live in the property as their main home.
You’ll need to have a sufficient income and a good credit history to afford the rent and to afford the future mortgage.
Where Rent to Buy is Available
Rent to Buy isn’t available in every area or for every type of property. You can only rent to buy if a suitable scheme is available in the area in which you want to live.
Most Rent to Buy schemes are for new build properties on new-build estates. Rent to buy is occasionally available for existing properties, such as where a rent to buy tenant has decided not to buy.
In many areas availability of rent to buy is very limited and there may be a waiting list.
How to Find a Rent to Buy Property
Rent to Buy schemes are offered by housing associations and not-for-profit housing developers. Check if there are any in your area and ask if they have rent to buy properties available.
The official HM Government Help to Buy scheme can tell you about any available properties and whether you are eligible. Contact your local agent.
In Wales, the Rent to Own website has a list of Rent to Own landlords.
In Northern Ireland, the Co-Ownership site has more information.
If you are considering a Rent to Buy scheme be sure to check the individual details carefully and take advice if you need it. Rent to Buy may not necessarily be the right kind of scheme for you. Also consider other options such as Help to Buy, shared ownership or buying outright to see how they compare.