Last updated: 23/07/2020 | Estimated Reading Time: 4 minutes
Rent to buy homes
As a first time buyer struggling to make the transition from renting to buying and to get onto the property ladder, you could benefit from the government’s rent to buy scheme.
Learn about what rent to buy is and whether or not it is a good option for you with our helpful guide.
In This Guide:
- What is rent to buy?
- How can I find rent to buy properties?
- Shared ownership
- Rent to buy and mortgages
What is rent to buy?
Rent to buy, also known unofficially as try before you buy, rent to own or intermediate market rent is a government scheme aimed at helping out first time buyers struggling to purchase their first property outright.
Those who qualify for the scheme can enjoy subsidised rent on a qualifying property for a set period, after which they’ll have the option of either buying the property outright or entering into a shared ownership deal. We’ll explain exactly what shared ownership entails later in this guide.
The set period will vary from property to property up to a maximum of five years. During this time, renters can benefit from mortgage rates generally at around four fifths of the market value of the property, making rent to buy a very attractive option when and where it is available.
One of the benefits of having a longer lease term is that you are more likely to be able to purchase the property at the end as you will have had more time to save up enough money.
A shorter lease means you’ll have less time to save but there will also be less of a risk of house prices rising up and you no longer being able to afford the property even if you had saved.
If you so choose, you can purchase the property outright or enter into shared ownership of it at any point during the lease period, you will simply be forced to make a decision at the period’s end.
If you are entering into a rent to buy scheme, you should contact a mortgage advisor to find out if you’ll be eligible to take a mortgage out on the property in question as well as to get a valuation.
There are certain requirements placed on those wishing to enter into a rent to buy scheme. You must:
- Be a first time buyer,
- Have a household income of under £60,000, and
- Have a relatively good credit rating.
The local authority governing the area in which the property in question is may then impose further restrictions or have certain rules they follow when selecting who is eligible to rent to buy. For example, priority is often given to those currently living in council houses. You will have to contact the relevant local authority to find out what conditions they place on prospective candidates for rent to buy.
How can I find rent to buy properties?
Finding a rent to buy property can be very hard, but this shouldn’t put you off. If you can’t find any near when you want to move, then try looking in neighbouring areas. It is often worth moving slightly further afield from where you originally wanted to be in order to benefit from the savings you can make by renting to buy.
You can use government backed websites like www.helptobuy.org.uk to get in touch with agents who can help you find rent to buy properties.
Shared ownership, also known as part rent part buy, is another option available to those struggling to buy a house outright.
When you part rent part buy a home you pay to own up between 25% and 75% of the property in question and then rent the remaining portion from the local housing association. The rent you will pay, as with rent to buy schemes, will be lower than the actual market value, again allowing you to save money.
If you have entered into a shared ownership scheme, you’ll generally have the option of gradually increasing the amount of the property you own as you get more money. This process is called staircasing.
Since the house, or at least the portion of it that you do not own, belongs to a housing association, there are certain issues with shared ownership. Namely, the housing association retains the right to evict you at any point that you fall short on your rent payments.
Rent to buy and mortgages
Many mortgage lenders will allow you to take out a mortgage on either rent to buy or part owned properties, but you’ll need to talk to them individually to find out if they will and to get them to value the house in question.
Although many opting for rent to buy schemes do not have the financial means to do so, you could consider taking out a mortgage to buy a property outright, giving you the freedom of ownership of the house.
If you do wish to take out a mortgage on any property, you should compare mortgage quotes by using Money Expert’s free mortgage comparison tool.