What Is Rent To Buy?
Rent To Buy has helped many people save up for their deposit to be able to buy their home by giving them a discount on their monthly rental payments. Read on to find out how Rent To Buy works and how you can apply!
What Is a Rent To Buy Scheme?
Rent to Buy is a special help to buy scheme to help people move smoothly from renting to owning their home by giving renters a discount on their monthly payments. Rent to Buy has been around in the UK for a long time and is like the right to buy for council house tenants. It’s a way for people with a lower income to earn the deposit for a mortgage.
Rent to Buy is available in England and Northern Ireland. There’s also a version of it called Rent to Own in Wales which is similar but has a slightly different way of discounting the rent price.
Check out our How To Rent Guide
How Does Rent To Buy Work?
A Rent to Buy scheme allows you to rent a newly built property for up to a 20% discount of the normal market rent price. The reduced rate for the rent is so you can save up for a mortgage to be able to buy the property in the future. The time you have to rent the property can vary depending on the offer, but normally the reduced rate is for 5 years.
Rent To Buy Example For example, if you find a place you want to live in that offers the Rent to Buy scheme, you’ll get that 20% discount off your normal monthly rent.
Say the normal monthly rent for a home is £1,000 a month. Under Rent to Buy, you’ll only pay £800 a month leaving you £200 to save towards a deposit. After five years, you would have saved around £12,000 from the discount alone.
At the end of the 5 years, you’ll be offered first refusal to buy the place.
What About the Rent To Own?
Rent to Own in Wales is similar to the Rent to Buy in England, but instead of providing you with a discount at the beginning of your 5 year lease agreement, you get back 25% of the money you have paid and also 50% of any increase in the value of the property since you’ve been living there.
Can I Do Shared Ownership with Rent To Buy?
Shared ownerships is where you can buy a part of your property from either the housing association or private developer that you’re renting from. How this works with a rent to buy scheme is that you can purchase between 25% to 75% of your home’s value and pay a reduced rent every month. You can then choose to buy more of your home in the future.
How Do I Qualify for Rent To Buy?
In order to qualify for Rent to Buy, you’ll need to be eligible to be able to take advantage of the discount on your rental payments towards a deposit. This can get a little tricky since most housing associations will set their own criteria for people looking to use the scheme.
In generally however, you can expect to comply with the following:
- You’re a first-time buyer
- You have a good credit score
- You earn less than £60,000 a year as a household
What Are the Upfront Costs?
Along with your regular monthly rent payments, there are some other costs involved when you start in a property on a Right to Buy scheme. Some of these costs can vary with the housing association you are renting from, but most of them are standard when renting any type of property.
- Deposit (usually 4-5 weeks of rent)
- First month’s rent
You’ll also have to pay council tax, utility bills, and, if you buy at least 80% of the property’s value, you’ll need to pay stamp duty.
Permitted Fees Letting agencies and landlords are not permitted to charge any fees for viewing or holding a property for you. You may only be charged for your rent, default fee, or an early termination fee. You might also be charged for replacing a lost key.
How Long Do I Have To Live at the Property?
The initial tenancy length will depend on the contract you sign with the landlord or housing association, but typically this can range between 1 year to 18 months. You are generally expected to stay in the property on the Rent to Buy scheme for at least 5 years and then you’ll be given the option to buy, however you are not obligated to purchase the property.
How Do I Apply for Rent To Buy?
In order to apply for Rent to Buy in England, you will need to first fill in a pre-evaluation form with a housing association or Help to Buy agency to judge whether you qualify in the first place. If you are successful, you’ll be then added to the waiting list and contacted if new build property becomes available.
If you’re looking in Northern Ireland, you should apply to Co-Ownership who deal with all the Help to Buy schemes. If you’re in Wales, the Welsh government provides a database of the property owners who participate in the Rent to Own scheme.
You should bear in mind that their priority is given to those people who have a local connection to the area or who have been living in a council house.
What is a local connection? You’ll have a local connection to an area if you’ve lived there for a number of years, or you have a job or family there. Needing a local connection is not universal, so if you’re moving home, you should double check your housing association’s requirements.
Is Rent To Buy a Good Idea?
Rent to Buy is a worthwhile scheme for many people who have a stable job that might not earn enough to be able to save for the deposit on a mortgage. It can be a great advantage so people can access properties that they might not be able to ordinarily without the discount.
However, there are some risks involved, particularly when it comes to house price rises that make the ultimate deposit much harder to obtain. Not to mention, you could face rent increases that might eliminate the advantages you might have had when you first started!
