According to recent mortgage statistics, average monthly rent in the UK now stands at over £1,000 a month, making saving for a place of your own difficult for many. However, the rent to buy scheme could help you make the transition from tenant to homeowner.
Rent to buy makes it easier to save for a deposit by offering a discounted rent on specific properties.
Rent to buy was designed to help tenants in England save for a deposit to buy a home. The properties offered in the scheme can be rented at 20% below market rent prices, meaning the 20% you would have spent on rent can be put to good use as deposit savings.
The scheme is offered through housing associations, so you may hear it referred to under a number of names; Rent to Save, Rent to Own or Intermediate Rentsave, or Try before you buy These are all essentially the same thing and the major eligibility criteria are the same, however, individual housing associations may have additional criteria in some cases.
There are similar schemes in Wales known as Rent to Own, and Northern Ireland, also known as Rent to Own. Scotland does not have a comparable housing scheme at the time of writing.
In London, the local version of rent to buy is known as London Living Rent. It operates in a similar way, in that you rent a property for below the market rate to help you save a deposit. There are some differences, however, the key ones being:
Rent on certain new build homes is set at a third of the average rent for the area (typically around £1000, although this varies by area)
Shared ownership homes are prioritised
Properties have a three-year minimum tenancy
The rent to buy scheme in England (outside of London) works in the following way:
Rent on certain new build homes is set at 80% of the local market rate
You get first option to buy the home when it becomes available to purchase - usually after two years of renting
The maximum tenancy is five years, at which point you will have to move out if you decide not to buy
You may have the option to purchase your home on a shared ownership basis if you can’t afford the deposit or mortgage loan to buy the entire property
The rent to own scheme in Wales operates slightly differently as you don’t have a subsidised rent, but if you do choose to buy the property you get a 25% rebate of all rent you’ve paid to date and 50% of any increase in value of your home since you began renting.
Rent to buy properties typically charge an intermediate rent of around 80% of the current market rate. The following example shows how much you could save on an average priced home:
Market rental: £1,000 a month
Rent to buy rent: £800 a month
Saving: £200 per month
Total saved after five years: £12,000 + any interest on the savings to be used as a deposit
If you meet the eligibility requirements for the scheme (which can be found further down this article) you will be able to rent a home and begin saving a deposit. Bear in mind that you will also need to qualify for a mortgage in order to actually purchase the property when you’ve saved enough money.
Simply by renting the property, you have the first option to buy if the landlord decides to sell at any point whilst you’re living as a tenant. However, you will need to keep in mind that you will need a mortgage to cover the market value at the time of sale, which may be higher than what it was worth when you originally moved in. It could also be less, however, and you would also benefit from that saving.
Don’t forget to compare mortgages to see whether you would be able to afford the loan size needed to buy your rent to buy property.
It may be possible to buy the home through the shared ownership scheme if you are unable to qualify for a mortgage to cover the full cost of the property. This will depend on the rules of the specific housing association that you are renting from, however, most tend to allow this.
You will need to meet the eligibility criteria of the shared ownership scheme in order to use this alongside the rent to buy scheme. More information can be found on their website.
This example shows how rent to buy and shared ownership can be paired to help you buy a home more easily:
You chosen rent to buy property has a purchase price of £250,000
Monthly rent is £1,200 - 80% of the local market rent of £1,500
You save £300 per month on rent towards a deposit
After five years your deposit will be £18,000
You chose to purchase 40% of the home (£100,000) - you can actually choose any amount between 10-75% this is for demonstration purposes only
Your £18,000 would provide an 18% deposit
Your mortgage loan would then need to be £82,000
The following eligibility criteria apply to all versions of the scheme, regardless of the name or housing association, however, each individual housing association may add additional criteria. For example, having local links to the area of the rental property
You will be eligible for rent to buy if you:
Are in full or part time employment
Are a first-time buyer or buying a property after a relationship breakdown
Have a household income below the maximum permitted by the scheme - typically around £60,000 a year, although some schemes do not have an income cap
You have a good credit score and can demonstrate that you can afford the rent now and the mortgage in the future
You get cheaper monthly rental payments compared to equivalent properties in the area
The saving can make it easier to build up a deposit
You can take comfort in knowing that your rent is not entirely ‘dead money’
You are able to live in the property for a number of years before you buy it - time to get a good feel for the home and the local community
You have guaranteed first chance to buy the home as a tenant, so it can’t be snatched by another buyer
You may be able to use the shared ownership scheme alongside it
You will have to pay the purchase price based on the property value at the time of sale, not at the time when you moved in, which could be more than you expected
You can only select a scheme property and only new build homes are available so your choice is fairly limited
The scheme is not available in every area
You may need to go on a waiting list to join the scheme, depending on the local authority area
If you purchase the home through shared ownership it can be more difficult to sell
Some local councils and housing associations and other not-for-profit housing developers advertise rent to buy homes. You can also check the Right to Buy website for listings.
In Wales you can find an official list of Rent to Own landlords with properties available under the scheme.
In Northern Ireland, the Co-Ownership site will help you to locate scheme properties.
When you join the scheme, the costs are similar to renting a home from any other landlord, with the exception of the lower rental cost. You will also need to provide:
A deposit, which will be held in the Tenancy Deposit Scheme
A fee to reserve your property in some cases - although this is usually deducted from your first month’s rent
Your rent will increase annually and the rise is limited to 1% + the Consumer Price Index (CPI)
When you decide to purchase your rent to buy property, you will also need to consider the standard costs of buying a home, such as conveyancing, valuation and the mortgage application fee. In some cases you will also need to pay stamp duty, depending on the cost of the home and your status as a first-time buyer (or not)
You can apply to rent a property through the scheme directly or through your local Help to Buy agent if you live in England. If you meet the eligibility criteria, and the property is still available, it will be offered to you.
Your initial tenancy agreement will be for up to 2 years. After that, if you need more time to save for a deposit, your landlord may agree to extend your tenancy.
If you do not pay your rent on time and follow the terms of your tenancy agreement, you may not be allowed to stay in the scheme.
If you live in Wales you can apply for Rent to Own via participating landlords. Here is where you can find a list of rent to own landlords.
In Northern Ireland you can apply via the Co-Ownership website.
There are no similar schemes available in Scotland at the current time, but you can look at Scottish home ownership schemes here.