Buying

What is the Rent to Buy Scheme?

Posted July 10, 2024
What is the Rent to Buy Scheme?

Rent to Buy is a government-backed scheme available in England (excluding London). It helps people who can’t afford to buy a home outright. This scheme provides a pathway from renting to owning a home. It gives tenants a chance to save for a deposit while they live in the property.

This guide covers what you need to know about Rent to Buy. The scheme will vary depending on the housing provider, area and developments available.

How Does Rent to Buy Work?

Under this scheme, housing associations or developers offer rental properties. These properties are let at reduced rents, typically 20% below the market rate. The reduced rent allows tenants to save money. This money can later be used for a deposit to buy the property.

Initial Rental Period

The initial rental period usually lasts for 5 years. During this time, tenants pay lower rents. The aim is to enable tenants to save more each month. At the end of the rental period, tenants have several options.

Options After the Rental Period
  • Buy the property: Tenants can use their savings to buy the property.
  • Enter into a shared ownership scheme: This means they buy a share of the property and pay rent on the rest.
  • Continue renting: If buying is not feasible, they may continue to rent but at the market rate.

Rent to Buy Eligibility Criteria

Not everyone can use the Rent to Buy scheme. There are certain criteria you must meet such as:

  • First-time buyers or former homeowners: You should either be buying your first home or not own another property.
  • Household income limit: Your combined household income should not exceed £80,000 per year outside London. If you live in London then take a look at the London Living Rent scheme.
  • Ability to afford rent: You must demonstrate that you can afford the rent and save for a deposit.

Please note that some developments or areas where Rent to Buy is available may have specific criteria and requirements.

Pros of Rent to Buy

Rent to Buy offers several benefits:

  • Reduced rent: Pay 20% less than the market rate, allowing for more savings.
  • Deposit savings: Save the money needed for a mortgage deposit.
  • Flexibility: You have multiple options at the end of the rental period.
  • Security: The scheme often includes new build properties, offering modern amenities.

Cons of Rent to Buy

While Rent to Buy is helpful for many, it also has drawbacks:

  • Market fluctuation: Property prices may rise, making it harder to buy later.
  • Financial discipline: You need to be diligent in saving money.
  • Eligibility restrictions: Not everyone qualifies for the scheme.
  • Limited availability: Not all areas have Rent to Buy properties available.

Rent to Buy vs Shared Ownership

Rent to Buy isn’t the only government scheme. Shared Ownership allows you you buy a share of the property (usually 25%-75%). You then pay rent on the remaining share. You can buy more shares over time, known as “staircasing”.

How to Apply

Applying for Rent to Buy is straightforward but requires planning:

  1. Find a Rent to Buy property: Check with housing associations or developers.
  2. Check eligibility: Ensure you meet all criteria.
  3. Fill out application forms: Complete necessary paperwork.
  4. Provide financial information: Demonstrate your ability to pay rent and save.
  5. Wait for approval: The process can take a few weeks.

Case Study

Imagine John, a teacher in Manchester. He earns £35,000 a year and has been struggling to save for a deposit while paying high rent. He hears about Rent to Buy.

John finds a Rent to Buy property. The rent is £600 a month instead of £750. Over the 5-year period, he saves £6,000 on rent alone. John also puts aside an extra £200 each month. At the end of 5 years, John has enough for a deposit. He applies for a mortgage and buys the house.

Frequently Asked Questions (FAQs)

Is Rent to Buy available everywhere in the UK?

No, it’s not available in every region. Availability depends on local housing associations and developers.

Do I need good credit to be eligible?

Your credit score is important for a mortgage but less so for Rent to Buy. However, you should demonstrate financial responsibility.

Can I decorate the property?

Policies vary. Generally, minor decorations are allowed but significant changes require permission.

What happens if I can’t buy the property after 5 years?

You can might be able to continue renting at the market rate or enter into a different scheme like shared ownership.

Conclusion

Rent to Buy offers a viable route for those struggling to save while paying high rent. It balances immediate housing needs with future ownership goals. Though it requires planning and financial discipline, it offers various benefits.

Consider all your options. Seek advice tailored to your circumstances. With the right approach, Rent to Buy could turn your homeownership dreams into reality.