Rent to Buy Scheme – The Complete Guide

Are you interested in home ownership but not sure you’ll be able to save for a deposit? If so, you might consider Rent to Buy.

This scheme, previously known as “intermediate rent”, may help you to speed up the process of getting onto the property ladder.

In this article, homebuying company (with 20+ years of experience) Property Solvers delve into the ins and outs of the scheme.

What is the Rent to Buy Scheme?

The UK government introduced the Rent to Buy initiative in September 2014. It was designed to help those who currently rent a home to buy the properties in which they live.

The intention of the scheme is to make homeownership more affordable. Participants are usually those who cannot purchase properties at the current market value, as their income or circumstances cause difficulties in saving for a deposit.

Is Rent to Buy Only for First Time Buyers?

Yes, the scheme focuses chiefly on first time buyers.

Eligibility further extends to people who wish to return to the property ladder following a relationship breakdown. The scheme is also sometimes available to those who have been “out of the loop” for a period of time.

How Does Rent to Buy Work?

In England (excluding London) and Northern Ireland, Rent to Buy requires the tenants of an eligible house or flat to pay a minimum of 20% below rental market value for up to 5 years.

This reduction over that period of time allows the tenants to save towards the purchase of the property.

Once the discounted tenancy period is over, the tenants make choose to buy the property using the amount they have managed to save as a result of the discount.

Alternatively, they may be able to purchase part of the house under a shared ownership scheme. If they do not wish to buy, they must move out.

London residents can access “Homes for Londoners” as an alternative option.

“Rent to Own” is the Welsh version of schemes of this kind.

In this arrangement, at the end of the tenancy period – during which full market rent is paid – the tenant receives 25% of the rent they have been paying. They will also receive 50% of any increase in the property’s market value that has occurred since they first took up residence.

They may use this amount as their deposit for a mortgage.

Shared Ownership and Rent to Buy: Are They the Same?

There are similarities between Rent to Buy and shared ownership. Indeed, many schemes offer shared ownership sales as well as the option to buy your home in its entirety as part of this initiative.

The difference is that shared ownership means that you can choose to purchase just part of the home you have been renting. For example, you may pay to own just 25% of the property while renting the remainder.

From this point, you may decide to buy the home gradually over a number of years. Known as “staircasing”, this helps you to spread the cost of purchasing your home.

What Does “Option to Buy” Mean?

When you come to the end of the five years – or the stipulated in your agreement – the landlord of your rent to buy home will then give you the opportunity to purchase it outright.

You can do this using a mortgage or via shared ownership. You are not under any obligation to make the purchase. If you and your household decide against it when the time comes, you may decline.

How Can I Find Advice on the Rent to Buy Scheme Near Me?

You can find details of local schemes by checking out the links on the Gov.uk Applying for Rent to Buy webpage.

Here, you’ll find details on how to locate Rent to Buy properties in your local area. You can also learn about opportunities to buy a home in this manner in the North, Midlands or South of England (excluding London).

It is worth noting that Rent to Buy will not always make a deposit more affordable if you wish to buy a home. By the end of the 5 years, the housing market may experience a boom. This means that your required deposit will be larger than you anticipated when you started paying monthly rent.

After all, you’ll normally purchase the home from your landlord for its current value. The final price of the property is not fixed. This remains the case whatever the behaviour of the housing market at the time the agreement began,

How to Begin

Rent to buy allows those struggling to access the housing market to pay affordable, below market rent and save for a deposit home ownership.

Normally, the savings they make on rent will make it easier to gather what they need for a deposit.

If you wish to use your monthly rent as an investment towards an affordable deposit, you can explore available help to buy properties in the North, Midlands and South – excluding London – today.