How Does the Rent to Buy Scheme Work?
Written by Martha Lott
10th Mar 2020 (Last updated on 1st Apr 2020) 6 minute read
Rent to Buy or Rent to Own is a government scheme aimed at helping first-time buyers who are struggling to transition from renting to buying their own home. The scheme will offer a more affordable rent price than market rate to allow you to save for a house deposit.
Compare My Move’s experts work hard to inform you of every step of the buying a house process, that’s why we’ve created this guide. We explain the Rent to Buy scheme, the eligibility criteria and how to apply for the scheme.
What is the Rent to Buy Scheme?
The Rent to Buy scheme allows you to rent a new build home for 20% less than the market rate rent price. Also known as Rent to Own, Rent to Save or Intermediate Rent, the Rent to Buy scheme will give you the opportunity to save for a house deposit whilst renting at a subsidised price over a few years.
The government scheme will ease first-time buyers who are renting into owning or part-owning a home. The Rent to Buy scheme will usually have a lease period of anywhere from 6 months to up to 7 years, with the aim of helping you to save money to buy the property or a different property. There is no obligation to buy the house once the lease is up.
How Does Rent to Buy Work?
The Rent to Buy scheme in England, Scotland and Northern Ireland means you rent a new-build home at a subsidised price for typically 5 years. After the rent period is up, you’ll have the chance to purchase the house outright. If this isn’t a realistic option for your budget, you can enter a Shared Ownership scheme which will allow you to buy a share of the house whilst renting the remainder.
The Rent to Buy scheme is not available on all property types as the landlord of the property must be signed up to the Rent to Buy scheme. You don’t have to pay a deposit to secure the property, but the first month’s rent will be needed in advance, similar to a typical renting contract.
As the properties available in the Rent to Buy scheme are new build homes, you should get a snagging list to ensure there are no issues.
How Does Rent to Own Work?
In Wales, Rent to Buy is referred to as Rent to Own. It essentially works the same as Rent to Buy but differs slightly with how you save the money. The scheme works by paying rent on a property at the going market rate, for up to 5 years, with the option to buy the house after 2 years.
If you choose to buy the property you’ve been renting, you’ll receive 50% of any increase to the property’s value along with 25% of the rent you’ve paid. This must be used towards your deposit for the house.
Am I Eligible for Rent to Buy?
To be eligible for the Rent to Buy scheme, you must be a first-time buyer and/or earning less than £60,000 in one household. For those looking at the scheme in London, you must have a combined household income of less than £64,300.
You should also have a good credit score to be eligible to apply for the Rent to Buy scheme. Your location will also depend on your eligibility, find out from your local Help to Buy agent what you need to do to qualify for the scheme. As the Rent to Buy scheme is designed for those with lower incomes, many lenders only accept applications from those with a good credit score as having a bad credit score will be viewed as too much of a risk for the lender.
How to Apply for Rent to Buy?
Depending on where you live, the application process for Rent to Buy scheme will differ. If you live in England, you will need to find your local Help to Buy agent to apply for the scheme. You will be added to the waiting list and contacted when a suitable property is available.
In Wales, you must contact participating landlords to apply for the Rent to Own scheme. They will let you know of any available and suitable properties for your requirements. After applying, you need to make sure you have £250 to pay the rent deposit.
To apply for the Rent to Buy scheme in Northern Ireland, you should apply via the Co-Ownership website.
Is Rent to Buy Right For Me?
If you’re struggling to save any money to go towards your first home while you rent, then Rent to Buy will be a useful scheme for you. Not only does it allow you to save money towards a house deposit by paying a cheaper market rate of rent, but you’ll also have access to properties that would normally be too expensive for your budget.
The Rent to Own scheme is worth it if you plan to eventually buy the property after you rent it. Whilst the rent is the same as the market rate, you will get back 25% of the rent you’ve already paid to go towards your house deposit.
Shared Ownership and Rent to Buy
Many Rent to Buy schemes offer the chance to buy a share of your home after renting for a period of time. Commonly known as Shared Ownership, it’s a government scheme that allows you to buy a portion of your house whilst paying rent on the rest. It gives you the option to buy more of the property later down the line.
The minimum portion of the house you can buy starts at 25%, with the maximum share you can buy being 75%. You’ll need to take out a mortgage for your share, with the opportunity to pay a mortgage deposit as little as 5%.
Shared Ownership mustn't be mistaken for Shared Equity, however. If you would like to learn more about Shared Ownership and Shared Equity, especially the differences between the two, then you read our article specifically debating the two schemes.
What is London Living Rent?
London Living Rent is similar to Rent to Buy but it helps those living in London to transition from renting to affording their first home. Introduced in 2017 under the mayor of London’s Affordable Homes Programme, London Living Rent is part of a £1.7bn investment into affordable properties all across London.
Those looking to apply for the scheme must have a combined household income of £60,000 or less and must be unable to currently afford to buy a house in their local area, including through a Shared Ownership scheme.
London Living Rent properties have a minimum tenancy of 3 years and are scheduled to be available to rent from 2021/2022.
Rent to Buy Mortgages
Many mortgage providers will offer mortgages for Rent to Buy or Shared Ownership properties. You will need to arrange a meeting with a mortgage adviser and let them know the details of your situation as Rent to Buy mortgages are in less demand than a traditional mortgage.
It’s important that you make sure you can afford to get a mortgage, as there are other costs involved in buying a house that’ll you need to factor in, too. You’ll need to budget conveyancing costs, surveying fees, removal costs and mortgage fees.
Save on Your Move with Compare My Move
Whether you’re using a Rent to Buy scheme, or transitioning from renting to buying a house, Compare My Move can help. We can connect you with licensed conveyancers, RICS chartered surveyors and verified removal companies to help with the whole buying a house process.