With average monthly rents now at just over £1,000 per month, saving for a place of your own can be difficult when you’re still shelling out for rent each month. However, the government’s 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 and make your home your own by offering you a discounted rent on specific properties.
The Rent to Buy scheme is a government-led initiative that enables you to rent certain new-build homes from housing associations at an “intermediate” rent, set at 80% of the market rate. The idea is that you save the freed-up 20% for a deposit. \nAfter an agreed period - typically five years or less - the property becomes available to buy, and you, as its tenant, have first dibs on buying it.
If you can’t afford to buy the entire property at the end of tenancy, you may be given a chance to purchase it on a shared-ownership basis. This allows you to buy a portion of the home and pay rent on the remainder. As time goes by, you can increase how much you own, a process known as “staircasing”.
Rent to buy schemes are run by housing associations in England, Scotland and Northern Ireland. You may also hear them described as intermediate rent, Rent to Own or Rent to Save schemes.
In Wales, the scheme is called Rent to Own and works slightly differently. Instead of getting a discounted rent, you get a 25% rent rebate when you buy the property and 50% of any increase in your home’s value since you started renting. You can put these amounts towards the deposit.
Londoners on middle incomes can try the London Living Rent scheme. Tenants pay rent set at a third of average local household incomes, freeing them to save for a deposit. Properties have a minimum of a three-year tenancy, and tenants are encouraged to buy them on a shared-ownership basis.
Paying a discounted rent can be a great incentive to save.
Rent to Buy works like this:
Certain new-build homes are made available by housing associations
Shorthold tenancies are agreed, with rents charged at 80% of equivalent properties in the area
The lease’s length varies according to the property and can last from six months to five years
You can make an offer to buy, or part-buy, the property at any stage
The price charged for the property will be its current market value at the time of purchase, not from when you first moved in
You will need a mortgage to complete your Rent to Buy purchase.
A 20% saving on your monthly rental payments, when compared to equivalent properties in the same area
Rental discounts combined with the right to buy your home provide a great incentive to save for a deposit
The chance to enjoy living in a new-build property and settle into a community, knowing you can stay there long term
First refusal when the property becomes available to buy – no other buyers will be able to snap it up before you
Potential to buy your home in increments with shared ownership - a good option if you can’t afford to buy the entire property at the end of your tenancy
Longer lease times allow you to save money and get your finances into the best possible shape before you apply for a mortgage
Rent to Buy properties will usually charge an intermediate rent of around 80% of the current market rate.
Tenancy period on a Rent to Buy two-bed property
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
The amount saved can be put towards the deposit when the home becomes available to buy.
You will be eligible for Rent to Buy if:
You are a first-time buyer.
You are buying a property after a relationship breakdown.
Your household income is below the maximum permitted by the scheme - typically around £60,000 a year. 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.
It’s important to note that eligibility rules may vary between schemes. For example, some may require you to be a housing association tenant or have a connection to the local area.
The costs of a Rent to Buy property are similar to renting an ordinary let. In addition to paying rent (typically a month in advance), you will also have to pay a deposit, which will be held in the Tenancy Deposit Scheme. You may have to pay a token reservation fee to reserve your property, but this will usually be deducted from your first month’s rent.
It’s important to establish the terms around who pays for the maintenance of the property, as this may vary.
When you formally purchase your rent to buy property, you take on all the standard costs of purchasing a property, including Stamp Duty and fees relating to conveyancing, valuation and the mortgage application.
If you have a reliable income and a good credit score but haven’t been able to save enough for a deposit, Rent to Buy could be a practical way of getting onto the property ladder.
It’s important to consider your timeframes though. Five years might give you ample time to save, but the catch is that house prices could rise substantially over that period. If you buy it sooner, house prices may not change as much, but you won’t have as long to benefit from the discounted rent and so build up your deposit.
Whether or not Rent to Buy is right for you will also hang on the availability of properties in the area that you want to buy - you won't have nearly as much choice as you would if you were renting or buying on the open market.
Availability is often limited and can vary between local authorities. You may have to apply and go on a waiting list.
When a property does come up, you need to be sure that it’s suitable for you. For example, there not much point starting a Rent to Buy agreement on a property that you’ll quickly outgrow or that isn’t in the right location for you.
It is also important to note that each housing association is likely to have its own eligibility criteria and may operate in different ways. This means it’s important to check the terms carefully before you proceed.
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