How the Rent to Buy Scheme Works

Rent to Buy is a housing scheme that offers a path from renting to homeownership. It is designed for people who want to own a home, usually for the first time, but struggle to save for a large deposit while paying market rent. This arrangement allows you to rent a home at a reduced price, build up your savings and eventually buy the property when you are ready.  

‍What Is Rent to Buy?

Rent to Buy is a government-backed housing scheme aimed at helping tenants transition into first time homeownership. Those returning to homeownership following a relationship breakdown may also be eligible. The scheme is usually managed through housing associations or specialized housing providers. Under Rent to Buy, you can rent a newly built home or a refurbished property at a rent that is usually 20% below the market rent for a similar property. This discount helps you save more of your income, which can be used toward a future deposit when you are ready to buy the property.

After renting for a few years, usually between five and ten years, you have the option to purchase the property at its market value. Unlike other schemes, there is no obligation to buy, allowing you to decide if and when homeownership is right for you.

Who Offers Rent to Buy?

The Rent to Buy scheme is primarily a government-backed initiative offered through housing associations, local councils and sometimes private developers. It is not directly offered by individual people acting as private landlords.  

1. Government-Backed: The scheme is part of the government's efforts to provide affordable housing solutions for people who cannot immediately afford to buy a home. The government, through agencies such as Homes England, helps fund and support these schemes to ensure that they are available in various regions. London for example, is covered by a separate scheme called London Living Rent.

2. Housing Associations: These not-for-profit organisations manage most of the rent to buy properties. They receive funding from the government to build or acquire homes that are then offered under the scheme. Tenants can rent these properties at a discounted rate with the option to buy after a certain period.

3. Local Councils: Some local councils manage rent to buy schemes directly or work with housing associations to offer these options to their residents. They may list available properties and manage the application process.

4. Private Developers: Private developers may participate in the scheme but only if they have agreements with local authorities to provide affordable housing as part of new developments. These properties still fall under the broader framework of the government-backed rent-to-buy initiative.

Individual landlords or private property owners generally do not offer rent to buy schemes in an official capacity like housing associations or councils do. Some private agreements between landlords and tenants might resemble a rent to buy arrangement, but these are not regulated rent to buy programmes. Instead, they would be considered private arrangements and would not come with the same protections or benefits that the government-supported scheme offers.

How Does the Renting Phase Work?

The renting phase is the first part of the Rent to Buy process. Here’s what to expect during this period:

• Discounted Rent: When you start under the Rent to Buy scheme, you pay rent at a rate lower than the typical market rent for the area. The rent is often around 20% lower than what similar homes are being rented for. This discount can make a significant difference to how much you can save each month.

• Duration of Renting: The rental period under Rent to Buy typically lasts for several years, often between five and ten years. This gives you time to save for a deposit, improve your credit score, if necessary, and make it easier when you apply for a mortgage.

• Living in the Property: During the renting phase, you live in the home as a regular tenant. You are responsible for the same things as any other renter, such as paying your rent on time and adhering to the other terms of your tenancy agreement. However, you also have the benefit of knowing that you might own the home in the future should you choose to exercise the purchase option.

What Happens When the Renting Period Ends?

When the rental period ends in a Rent to Buy scheme, several possible outcomes are possible, depending on your financial situation and your plans for the property.  

• Option to Purchase the Property: At the end of the discounted rental period, you have the option to buy the property. This is one of the primary goals of the scheme. Assuming that you will have built up enough savings for a deposit by this stage, you will need to apply for a mortgage if you decide to buy the property. If you qualify for a mortgage, you should be able to proceed with the purchase.

• Shared Ownership Option: Some Rent to Buy schemes allow tenants to buy a share of the property through a shared ownership arrangement rather than purchasing it outright. This means you could buy, for example, a 25% or 50% share of the property and pay rent on the remaining portion. You can then "staircase" over time, gradually purchasing more shares until you own the property fully.

• Continue Renting at Market Rate: If you are not ready to buy when the discounted rental period ends, some schemes might allow you to continue renting the property. This will be at the full market rent rather than the discounted rate you were paying during the Rent to Buy period. This option depends on the housing provider's policies and you would need to discuss it with them as you approach the end of the discounted rental period.

• Moving Out: If you decide not to purchase the property and the landlord does not offer an option to continue renting, you may need to move out at the end of the rental period. The housing provider may then put the property on the market or offer it to another eligible participant in the Rent to Buy scheme.

Who Is Eligible for Rent to Buy?

Rent to buy is not available to everyone. To qualify for the scheme, you must meet specific eligibility criteria.  

• Income Requirements: Rent to Buy is aimed at households with a combined income below a certain threshold. The exact limit can vary depending on where you live. For instance, in London, the income cap is typically higher due to the higher cost of living and higher house prices. It is important to check the requirements for the area where you want to live.

• First-Time Buyers: The scheme is usually targeted at first-time buyers. This makes Rent to Buy a good option for those who want to get onto the property ladder but have been renting due to financial constraints.

• Local Authority and Housing Association Rules: Some properties under Rent to Buy are managed by local councils or housing associations, which may have additional criteria. For example, they may prioritise key workers, such as teachers and nurses, or others who live in the area, or those on the local housing register. It is important to check the rules with the specific provider.

How to Apply for Rent to Buy

Applying for Rent to Buy involves several steps.

• Finding a Rent to Buy Property: The first step is to find a rent to buy property. These homes are often listed by housing associations, local councils and property websites that specialize in affordable housing schemes. It is important to research properties in your desired location and contact the housing provider for more details.

• Submitting Your Application: Once you find a suitable property, you will need to apply. This usually involves providing proof of your income and other personal details to ensure that you meet the eligibility criteria. The housing provider will review your application to determine if you qualify for the scheme.

• Approval and Moving In: If your application is approved, you sign a tenancy agreement and move into the property. Make sure you understand the terms of the rental agreement, including the length of the rental period and the discounted rent you will pay. This will help you plan for when you might want to buy the property.

Benefits of Rent to Buy

Rent to Buy offers several advantages for those who want to become homeowners but are not yet ready to buy.

• Opportunity to Save for a Deposit: One of the main advantages of Rent to Buy is the ability to save for a deposit while renting at a reduced cost. This can make it easier to save up the necessary funds without the pressure of paying full market rent.

• Stable Housing: With Rent to Buy, you have the stability of knowing you can live in the same home for several years. This can provide peace of mind, especially for families who want to avoid frequent moves or disruptions in schooling.

• Try Before You Buy: Living in the property before committing to buy allows you to see if it suits your needs long term. You can get a feel for the neighbourhood, commute and local amenities, helping you make a more informed decision about whether to purchase the property.

Risks and Challenges of Rent to Buy

While Rent to Buy can be a great option for some, it also comes with certain risks and challenges.  

• Market Value Risks: The price you pay to buy the property is based on its market value at the time you decide to purchase, not when you started renting. If property prices rise significantly, you might find the cost higher than expected, making it harder to afford.

• No Guarantee of Mortgage Approval: Even if you save enough for a deposit, there is no guarantee that a lender will approve your mortgage application. If your income or credit situation changes during the renting period, it could affect your ability to secure financing.

• Commitment to Location: Rent to Buy ties you to a specific property for several years, which can be a disadvantage if your circumstances change. If you need to move for work or other reasons, you may have to give up the option to buy the home.

Alternatives to Rent to Buy

If Rent to Buy does not seem like the right option, other schemes might help you achieve homeownership.  

• Shared Ownership: Shared Ownership allows you to buy a share of a property, usually between 25% and 75%, and pay rent on the remaining share. Over time, you can buy additional shares in the property, a process known as "staircasing," until you own the property outright.

• Right to Buy: Right to Buy is only available for eligible council tenants who can buy their council home at a discounted price. Its availability varies from council to council.

Conclusion

Rent to Buy is a unique scheme that offers a pathway to homeownership for those who need time to save for a deposit. Allowing you to rent at a discounted rate and build up your savings makes it possible to work toward buying a home even if you are not ready to purchase one immediately. Understanding the eligibility requirements, the process and the potential advantages and disadvantages can help you decide whether Rent to Buy is right for you.

FAQs:

Q. Can I choose not to buy the property at the end of the rental period?
A. Yes, you can choose not to purchase the property when the rental period ends. However, you may need to find a new place to live, as the landlord might put the property on the open market.

Q. What happens if my income increases during the rent-to-buy period?
A. An increase in income during the rental period typically does not affect your eligibility to remain in the property.  

Q. Can I buy the property before the rental period ends?
A. In some cases, yes. Some rent to buy schemes allow tenants to purchase the property before the end of the rental period if they can secure a mortgage earlier.

Q. What happens if I cannot secure a mortgage after the rental period?
A. If you cannot secure a mortgage, you will not be able to purchase the property. In this situation, you may need to continue renting at the current market rate or move out.

Q. Are rent-to-buy properties new builds or existing homes?
A. Most rent-to-buy properties are new builds, but some may be existing homes offered through housing associations or local authorities.

Q. Can I use a rent to buy scheme if I already own a property?
A. No, rent to buy is primarily intended for first-time buyers. You will not be eligible for this scheme if you already own a property.

Q. What if I change my mind about buying during the rental period? Do I have to pay back the discounted rent? No, you do not have to pay back the discounted rent if you decide not to buy the house. The reduced rent is offered to help you A. A. save money for a deposit during the rental period.

Q. How is the property value determined when I decide to buy?
A. The property value is typically assessed at the time you decide to purchase. This means the price could be higher or lower than when you started the rent to buy arrangement.

Sources:

Rent to Buy | GOV.UK