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- Rent to Buy | What is it and how can it help you?
Rent to Buy
According to UK mortgage statistics, the average monthly rent in the UK is now more than £1,000 a month, making it difficult for many prospective homeowners to save a deposit.
The rent to buy scheme could help make the transition from tenant to homeowner easier by allowing by offering a discounted rent on specific properties. This discount can then be used as a deposit to buy your rented home.
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What is rent to buy?
The rent to buy scheme was designed to help tenants in England (except in London where there is a separate scheme) save for a deposit to buy a home.
The properties are offered 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 homes
Intermediate Rentsave
Try before you buy
These are all essentially the same scheme, so most eligibility criteria are the same, but individual housing associations may also included their own additional criteria.
There are also similar schemes around the UK that work slightly differently:
The Rent to own Wales scheme is now closed to new landlords, but there are some properties still available for tenants. It operates slightly differently as your rent isn't subsidised but you get a 25% rebate of all rent you’ve paid and 50% of any increase in value of your home since you began renting to help you buy.
Rent to own Northern Ireland works in a similar way to the English scheme.
There is currently no comparable rent to buy scheme in Scotland.
How does rent to buy work?
The rent to buy scheme in England (outside of London) works in the following way:
Rent to buy properties are new build homes set at 80% of the local market rent
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
London living rent scheme
The London Living Rent is a separate, but equivalent scheme to rent to buy. It operates in a similar way, but there are some key differences:
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
How much can I save with rent to buy?
Rent to buy properties typically cost around 80% of the current market rent price for an equivalent home. 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
Can I get rent to buy?
If you meet the eligibility requirements for the scheme in your area you'll be able to rent a home and begin saving a deposit. Keep in mind that you'll also need to qualify for a mortgage to purchase the property once you've saved a deposit.
You have the first option to buy if the landlord decides to sell whilst you’re a tenant. However, the property's market value at the time of sale may be higher than it was when you moved in. It could also be less, however, in which case you would also benefit from that saving.
Don’t forget to compare mortgages to see whether you could afford the loan size needed to get a rent to buy mortgage.
Buying the home through shared ownership
It may also be possible to buy a rent to buy home through the shared ownership scheme with some housing associations, if you're unable to qualify for a mortgage to cover the full cost of the property. This depends on the rules of the specific housing association that you are renting from, however, most tend to allow it.
You will need to meet the eligibility criteria of the shared ownership scheme as well, to use this alongside the rent to buy scheme. 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
Who is eligible for rent to buy?
The following eligibility criteria apply to all versions of the scheme, regardless of the name or housing association:
Each individual housing association may add additional criteria - for example, you may need local links to the area of the rental property
Advantages and disadvantages of rent to buy
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
How to find rent to buy properties
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 rent to own properties.
It's not possible to use rent to buy with a private landlord.
What costs are involved with rent to buy?
When you join the scheme, the costs are similar to renting a home from a private landlord:
A deposit, which will be held in a suitable 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 by a maximum of 1% + the Consumer Price Index (CPI)
When you purchase your rent to buy home, you'll also need to consider the typical costs associated with taking out a mortgage, such as:
Conveyancing and legal fees
Valuation fees
Mortgage application fees
Stamp duty - depending on the cost of the home and whether you're first-time buyer (or not)
How to apply for rent to buy?
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.
You can also look at Scottish home ownership schemes here.
