What is the rent to buy scheme?
The Rent to buy Government scheme is a first-time buyer scheme which allows prospective first-time buyers to save money for a mortgage deposit whilst renting. The rent to buy scheme allows you to rent a home at 20% below market value for 5 years or less depending n the property. At the end of the 5 years, you must buy part or all of the property or move out.
The Rent to buy scheme works by the Government providing £400m to housing associations or registered providers to build new homes. The funds are cheap loans provided by the Government so new affordable rent to buy homes could be built.
The Government will provide half of that to London and the remaining £200m to other regions of England. The target amount of houses to be built stands at 10,000.
A housing association or registered provider will offer you rent at 20% below market price, this means you can save the remaining 20% up until the point at which you have enough money to put down a mortgage deposit on the rent to buy property.
The Housing association or registered provider will give you an initial contractual rental commitment of 6 months with the option for you to increase this as you wish up to 5 years after which you will have the first refusal on the property.
You can also buy the property you are renting via the shared ownership mortgage scheme.
Rent to own vs rent to buy?
These schemes are exactly the same but the rent to own is simply a marketing name used by housing associations to market the rent to buy scheme.
What you need to know about the rent to buy scheme:
The rent to buy scheme is also known as rent to save.
The rent to buy homes has limited availability.
There is an option to buy but not an obligation to buy the rent to buy property.
Rent to buy homes are made available on a standard shorthold tenancy agreement.
Rent to buy homes are available through housing associations and registered providers.
Different housing associations use different names, such as Try Before You Buy, Rent Save Buy, Rent to Own, Intermediate Market Rent and more. Be sure to confirm the scheme you are getting into is also known as a rent to buy scheme before agreeing.
Different housing associations or registered providers may have more eligibility requirements than the ones below.
If you live in London, you will need to contact the Mayor of London’s first steps to home ownership website
To be eligible for the Rent to buy scheme you must not:
- Be a current homeowner
- Have a combined household income of more than £60,000 or £64,300 if you are looking for properties in London
- Have any credit problems such as debts, bankruptcies, county court judgements etc
The rent to Buy scheme seems a good option but as house prices continue to rise you must consider if the savings you put away will surpass the rise in house prices or vice versa.
You should also check with a mortgage broker to get an idea of how much you may need to borrow to buy the rent to buy property and check a government scheme calculator to see if you will be eligible for any other government schemes which may reduce your mortgage deposit or provide you savings when buying a home.
These government schemes could include:
- Lifetime ISA- gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy ISA- gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy- allows you to buy your home at a discount price.
- Preserved right to buy- same as above.
- Right to acquire- same as above.
The properties you will be able to access with the rent to buy scheme will be new build properties which you may find harder to get without the scheme.
How to apply for the rent to buy scheme?
To apply for the rent to buy scheme you must register with your local Help to Buy agent.
Your local help to buy agent will assess your application and let you know if you are eligible and add you to their database.
They will then automatically or manually contact you when suitable properties become available that meet your criteria.
You should also search your local help to buy agents website and any registered providers in your region for available properties.