What is Rent to Buy?
Rent to Buy is one of the options available to buyers who would otherwise be unable to own a home. However, the scheme has strict eligibility criteria and is restricted by the limited availability of suitable properties in many areas. Read on to find out more about Rent to Buy homes so that you can decide if the scheme might be a suitable route for you to buy a home.
What is a Rent to Buy scheme?
The Rent to Buy scheme was launched in 2014 by the 2010 to 2015 Conservative and Liberal Democrat coalition government as a response to the UK's affordable housing crisis.
Successful Rent to Buy applicants sign an assured shorthold tenancy agreement under which they’re able to rent a home at 80% of the market rate for up to five years. They retain the option to buy – either outright or as part of a Shared Ownership agreement – at any point during or immediately following the lease period.
Is Rent to Buy known by any other names?
Depending on the housing association offering the scheme it might be referred to by the following names: Rent Save Buy, Try Before You Buy, Rent to Own, Own Now Pay Later, Intermediate Market Rent or London Living Rent.
London Living Rent
This forms part of the Homes for Londoners scheme and is the London-specific version of the Rent to Buy scheme. There are some differences, however – for example, tenancies are for a minimum of three years and rent is charged at two-thirds of the market average. Unfortunately, the scheme is unlikely to provide significant numbers of homes until at least 2021. You can stay updated here.
Regional differences
When you join theRent to Buyproperty ownership scheme in England, Scotland or Northern Ireland, you pay rent on a new home at around 20% less than the market rate. You can do this for up to five years. Once you reach the end of your rental period, you can buy the property outright or under a Shared Ownership agreement. If you choose not to buy at the end of this period, you will need to move out to make way for another affordable housing applicant. The Welsh version ofRent to Buyis known as Rent-to-Own. UnlikeRent to Buy, successful applicants must pay the full market rate for two years, at which point, they receive help with their deposit in the form of a 25% refund on all the rent they have paid plus 50% of any increase in the home’s value.
How does Rent to Buy help you save?
The rationale of the Rent to Buy homes government scheme is that by paying 20% less rent, you may be better able to save for a deposit. Depending on your provider, once you reach the end of your subsidised rent period, you may be either able to buy the property or continue to rent it but at the full market value. Although you should have the intention to buy at the time of your application, ultimately you have no obligation to do so.
How does the scheme help you save money?
Because you’re renting your home at just 80% of the market rate, you’ll be able to put the 20% saving you make each month towards a deposit. For example, if the market rate of your property is £1,000 per month, you’ll only pay £800, ensuring a £200 per month saving that you can later put into a deposit on the property.
How do you buy?
Typically, you’re free to buy your home at any point between the end of the second year and the end of your lease. At this point you have the option of buying your home outright or entering a Shared Ownership agreement with the housing association.
If you decide to buy your home via this government scheme, you may receive assistance with your deposit in the form of a payment of 25% of the rent you’ve paid plus a sum that is equivalent to 50% of any increase in the property’s value during the period of your tenancy.
What kinds of properties are available?
Rent to Buy is only available for new build homes (or homes that have previously been owned as part of the scheme). Unfortunately, if you would like a period or more ‘lived-in’ property for your new home, or have concerns about ‘snagging’ or quality issues with newbuilds, you may have to find an alternative route to buying a property.
Is snagging a real concern?
A new A 2017 YouGov survey for the housing charity Shelter found that 51% of newbuild homeowners in England had experienced major snagging issues in their new homes. Typical problems include utilities faults, faulty construction and unfinished fittings. The same poll also found that only 29% of people would rather live in a new home than an old one and that only 22% consider newbuild homes to be built to a higher standard than existing properties.
Are you eligible for the Rent to Buy scheme?
Rent to Buy is primarily aimed at helping first-time buyers get a foothold on the property ladder, although it’s also available to people who have previously owned but who would otherwise struggle to buy a home again on the open market. Eligibility criteria may vary from housing association to housing association. However, all successful Rent to Buy home applicants must meet the following criteria:
- Have household income of £60,000 a year or less (£64,300 or less in London).
- Be a first-time buyer (or previous homeowner who is no longer able to buy on the open market).
- Be in full-time employment.
- Have a good credit score.
Some housing associations will give priority to existing tenants and council tenants. Furthermore, if you’re a first-time buyer your application is likely to be prioritised ahead of any applicants who have previously owned a home.
How do you apply for Rent to Buy?
To apply for a Rent to Buy house you must register with a Help-to-Buy agent. Different local authorities use different terminology and may have different criteria. More information about finding a Help-to-Buy agent can be found here. Once you’ve provided your Help-to-Buy agent with your details, they’ll assess you and, if you’re eligible, add you to their database.
How are you assessed?
The Rent to Buy housing association will ask you to make a full financial disclosure so that it can assess your application. Rent to Buy housing associations need proof that you can pay rent AND put aside the 20% rent-saving towards a future deposit. They may also look for periodical evidence that you’re continuing to save towards your deposit.
Do you pay a rental deposit?
There’s no requirement to pay a rental deposit. However, you’ll typically have to pay one-month’s rent in advance.
Are you obliged to buy?
All Rent to Buy property applicants should have a genuine expectation that they’ll buy. However, the scheme understands that people’s situations can and do change. As such, there’s no obligation for successful applicants to buy a home under the scheme. As you near the end of your property lease period, your Help-to-Buy agent will contact you to discuss your post-lease plans and options.
Who is responsible for maintenance?
During the initial assured shorthold tenancy period, the housing association is responsible for most of the maintenance and repairs – i.e. the boiler, plumbing, and electrical work. However, as the tenant you’re likely to be responsible for general upkeep such as replacing light bulbs, unblocking sinks and maintaining any mould or damp caused by condensation.
Pros and cons
It’s important to consider the benefits and drawbacks to the Rent to Buy route to buying a house.
Pros
- A 20% discount on market-value rent to help you build a deposit.
- No obligation to buy.
- Leases that last up to five years.
- Help with a deposit if you buy the property.
- No deposit required for your initial rental period.
- You can get a feel for the property and local area before you buy.
- You’ll be renting the property from a social landlord.
- You can’t be evicted as long as you pay the rent.
- No moving costs if you decide to stay.
- Service charges, repairs and upkeep are covered by your rent.
Cons
- There’s a very limited supply of Rent to Buy homes in the UK.
- Rent to Buy is only available for newbuild properties.
- There may be snagging issues.
- You must have a household income under £60,000 (£64,300 in London).
- You’ve access to only a limited number of lenders.
- The scheme will be restricted from 2021 and axed from 2023.
Rent to Buy vs Part-Buy, Part-Rent (Shared Ownership)
Both are government schemes for people who would otherwise struggle to achieve homeownership on the open market, typically first-time buyers. However, Rent to Buy and Part-Buy, Part-Rent (also known as Shared Ownership) are significantly different, particularly during the early stages:
- Under a Part-Buy, Part-Rent agreement, you take out a mortgage to purchase a share of the property (typically between 25% and 75%) and pay rent on the housing association-owned portion; Under Rent to Buy, you begin the process by renting at a rate that is 80% of the market value, with the option to later buy outright or as part of a Shared Ownership agreement.
- The maximum income for Part-Buy, Part-Rent applicants is £80,000 per annum (£90,000 in London); the maximum household income for Rent to Buy applicants is £60,000 (£64,300 or less in London);
- Part-Buy, Part-Rent is available for ‘purpose-built homes’ – these can be either new build or resale properties (although the vast majority are newbuild); Rent to Buy properties are only ever new-build.
- A Part-Buy, Part-Rent deposit must be at least 5% of the portion you’re buying; with Rent to Buy you have the subsidised lease period to save for a deposit, at which point your deposit must be at least 5% of the portion of the property you’re buying.
Learn more about Part Buy, Part rent in our blog post over here!
Some other routes to homeownership
Part-Buy, Part-Rent and Rent to Buy properties are just two of the options available to first-time buyers who are looking for an affordable route into homeownership. Other options include the following:
Equity Loan Scheme: This forms part of the government’s Help to Buy initiative and is available to first-time buyers and existing homeowners. The scheme enables you to borrow 20% of the purchase price interest-free (40% if you live in London) for the first five years. However, you must prove that you’ve saved a 5% deposit. The scheme is currently restricted to newbuild homes with a purchase price of less than £600,000, although new regional price caps will apply from 2021.
Right to Buy: If you’ve rented your home from the local council for three years or more, the Right to Buy scheme may enable you to buy it at a discount. Even if you rent from a housing association, you may still be able to purchase your home under the ‘Preserved’ Right to Buy or Right to Acquire schemes.
Right to Acquire: If you don’t qualify for Right to Buy you may still qualify for scheme called Right to Acquire. It’s similar to Right to Buy but offers slightly smaller discounts.
Homeownership for people with long-term disabilities (HOLD): If you have a long-term disability, you may be able to purchase a home on a Shared Ownership basis if other Shared Ownership schemes do not meet your particular needs – i.e. you need a ground-floor property or a property with hallways of a particular width.
Older People’s Shared Ownership (OPSO): If you’re aged 55 or over, you can use this scheme to buy up to 75% of your home. However, unlike conventional Shared Ownership, once you own 75% you don’t have to pay rent on the remaining portion.
Starter Home scheme: Under this plan 200,000 new build homes will be made available to first-time buyers under 40 years old at no more than 80% of the market price.Starter Homes will be available for a maximum of £250,000 outside London and £450,000 inside London.
Wayhome: Wayhome allows you to buy a house in partnership with one of Wayhome’s funding partners. You need at least £24,000 household income before tax and a minimum 5% deposit of at least £7,500 – i.e. you pay for 5% of the property and the funding partner pays for 95%. The Wayhome proposition differs from Shared Ownership and Rent to Buy in that any excess rent you pay goes towards increasing your ownership. If you buy more, your ownership percentage is updated and your rent adjusted accordingly.