Rent to Buy: How the government can help you buy a home
Ease the transition of renting to buying a home. Read our guide to find out more about the Rent to Buy scheme and if it's right for you.
Rent to Buy is a government scheme designed to ease the transition from renting to buying a home by providing subsidised rent. You may also hear it referred to as Rent to Save, Rent to Own or Intermediate Rent.
With Rent to Buy in England, Scotland and Northern Ireland, you rent a newly built home at approximately 20% below the market rate for up to five years (exact period of time varies by property). During that time period, you have the option to buy the property or to buy part of the property under a Shared Ownership scheme. When you get to the end of the time period, you either have to buy part of the property or move out.
In Wales the scheme is known as Rent to Own and works a little differently. You rent a property and pay the going rate for up to five years. After two years you have the option to buy the property. If you decide to buy you will receive 25% of the rent you have paid and 50% of any increase in the property’s value since you moved in to use as a deposit on the purchase.
How does Rent to Buy work?
- Homes are made available to rent with a shorthold tenancy at a reduced rate of 80% of local market rents
- The expectation (although not obligation) is that this shorthold period of paying less rent gives you the chance to save for a cash deposit so you can apply to buy a share of the home later. After the shorthold has lapsed, you can purchase the property on shared ownership terms, or move.
- Typically, a lease period will last anywhere from six months to 5 years, depending on the property in question
- You are free to make an outright offer, or look into a part rent part buy scheme, at any time during your lease
- Different housing associations use different names, such as Try Before You Buy, Rent Save Buy, Rent to Own, Intermediate Market Rent and more – so check the terms of what you are being offered by a housing association before signing up
- Be aware there is very limited availability under this scheme. The exact number varies by local authority
How does Rent to Own work?
- You rent a home at market rate for up to five years.
- Between the end of the second year and the end of the five-year agreement you can apply to buy your home.
- When you apply to buy your home you will receive 25% of the rent you have paid back plus 50% of any increase in the property value since you moved in. That money can be used towards a deposit to buy the home.
What is London Living Rent?
If you live in the capital then rent to buy is known as London Living Rent. The scheme is the same as rent to buy. You rent a property for less than market rate with the idea that you can then save up a deposit. Tenancies are for a minimum of three years and during that time you are prioritised for shared ownership homes so you can get on the housing ladder.
The properties available through London Living Rent have an average monthly rent of around £1,000. That is two-thirds the average for the capital. The rent level varies depending on the area but they are all based on being a third of the average rent for the area.
Am I eligible for rent to buy?
You are eligible if:
- Your household earns £60,000 a year or less. A household can be one person, or you and a partner or you and a friend
- You are a first-time buyer, or you used to own a home but can’t afford to buy one on the open market now
- You have a good credit history
But, to make it more complicated, there are further eligibility criteria, which differ depending on the housing association the property is offered through. Priority is normally given to certain groups such as existing housing association tenants and council tenants, people that fit with local priorities, as well as first-time buyers.
If you don’t qualify for Rent to Buy then there are a number of other government schemes aimed at helping you buy a home. There are loans for first time buyers, shared ownership schemes, and various tax-free savings accounts. You can find out more with our guide to how the government can help you buy a home.
Should I do it?
If you are eligible for Rent to Buy, it really then depends on the property, the housing association’s offer and whether you will take advantage of the reduced rent to save up for a deposit. The offer is so varied from one housing association to another, you really need to read the small print of what is being offered before weighing up if it will be beneficial for you.
One of the advantages of Rent to Buy is that it may give you access to properties that you otherwise wouldn’t be able to afford. You are also dealing with a social landlord, which may offer you an extra feeling of security. If you plan to save during this time, take a look at our guide on everything you need to know about Lifetime ISAs.
In order to make sure you save up enough we’d recommend cost-cutting while you are renting too. We have guides covering everything from slashing your energy bills to how to plan a household budget. You can find them all in the cutting your bills section of our website.
A disadvantage is that if house prices rise during the period you are renting, they might rise beyond your reach. A longer rental period puts you at greater risk of this. In Wales Rent to Own offers 50% of any increase back to you to help with your deposit.
If you are looking at signing up and eventually buying the property, check with an independent mortgage adviser first and price up how much this would cost you in monthly repayments. You should ask whether lenders are happy to lend against properties within the Rent to Buy schemes. Don’t forget there are the costs of buying a home to factor in too.
How do I apply?
- First, you must register with your local Help to Buy agent if you live in England. They will assess your application and tell you if you are eligible and add you to their database. This is worth doing as they may contact you directly if a suitable property becomes available.
- If you live in Wales you can apply for Rent to Own via participating landlords. Here is where you can find a list of rent to own landlords.
- In Northern Ireland you can apply via the Co-Ownership website.
- You should also be proactive and browse for properties on your local Help to Buy agent’s website.
- Find a property you like the look of and ring the number on the advert to check your eligibility.
Rent to Buy and Shared Ownership
Many Rent to Buy schemes allow you to buy a portion of your home rather than the whole thing. This is known as shared ownership. You buy say 25% of your home and continue to rent the rest of it. In the future you can then choose to buy more of your home through a process called staircasing. You can find out more with our guide to shared ownership.
While shared ownership offers an affordable way to get on the housing ladder there are some problems with it. Read more in Shared Ownership: What to watch out for.
Other ways to buy
There are a number of government schemes designed to help you buy a home, which could be worth investigating. This includes:
- A Help to Buy equity loan, that will lend you up to 20% interest-free for five years (of 40% in London). This is for new build homes only, valued under a certain limit
- Shared ownership allows you to buy a portion of a new build home and rent the rest, as long as you meet some very specific eligibility criteria.
- Right to Buy allows council tenants to buy their home at a discounted price.