The government’s Rent to Buy scheme: What you need to know
The government’s Rent to Buy scheme provides would-be homeowners with a way to bridge the gap between renting a property and owning one. Read on for more information about the Rent to Buy scheme, and to find out whether it could help you.
Saving for a deposit while paying rent can be hard, but if you’re a tenant who’d really like to own your own home, a Rent to Buy scheme may be able to help. The rules of Rent to Buy can vary slightly between certain parts of the UK, so you’ll need to understand how the scheme works where you want to call home. However, if you’re eligible, and can find a suitable property, a Rent to Buy scheme could make the switch from renting to buying a little easier.
What is the Rent to Buy scheme?
A Rent to Buy scheme essentially works by subsidising the rent you pay on a particular property for a set time. At the end of this period, you have the option to buy the property you’ve been renting – either with a mortgage, or through a Shared Ownership scheme. The idea is that with rental support, you’ll be better placed to save for a deposit to put towards purchasing the house when your rental period draws to an end.
Sometimes Rent to Buy schemes are known under other names, including Intermediate Rent, Rent to Own, Rent to Save, or for Londoners, London Living Rent.
How does the Rent to Buy scheme work?
Rent to Buy comes with slightly different rules depending on where you live in the UK, and is also not available in all locations. While your local Help to Buy agent will be able to tell you more about the scheme in your local authority, some rules specific to certain countries (and London) include:
In England, Scotland, and Northern Ireland:
- You rent a new build home for around 20% less than the market rate, for up to five years, depending on the particular property.
- During the rental period, you can buy the property, or a portion of it, under a Shared Ownership Scheme.
- When you get to the end of your rental contract, you either have to buy the property, or leave it.
- The scheme is called London Living Rent, but is the same as Rent to Buy – landlords offer cheaper rent so tenants can save for a mortgage deposit.
- The amount of rent you’ll pay depends on where you live in London.
- Tenancies must be for a minimum of three years.
- Under the Rent to Own scheme in Wales, you must rent a property at the market rate for up to five years.
- After two years of renting, you can opt to buy the property.
- Choose to buy and you will get back 25% of the rent you’ve already paid, plus 50% of any increase in the value of the property since you started renting it, to put towards a deposit on the house.
Am I eligible for the Rent to Buy scheme?
You may be eligible for the Rent to Buy scheme if you can say yes to the following:
- You’re a first-time buyer, or a former homeowner who can’t afford another property in the current market.
- Your credit history is good.
- Your household - this can be you on your own, you and a partner, or you and a friend – earns £60,000 a year or less.
Your specific Housing Association will have further criteria which may affect your eligibility, so be sure to get a full list of terms and conditions to check if the scheme could be an option for you.
How do I apply for the Rent to Buy scheme?
How you apply for the Rent to Buy scheme will differ slightly depending on where you live. However, it’s always best to keep an eye out for any homes that might fit the bill on your local Help to Buy agency website.
The first step is to register with your local Help to Buy agency, which will consider your application and eligibility. If you qualify, and are included on its database, the agency could get in touch with you directly should a suitable home come to its attention.
To apply for Rent to Own, you’ll need to go through a landlord who has signed up to the scheme. You can find a rundown of the various landlords participating in Rent to Own, including their contact details and the areas they cover, on the Welsh government website.
In Northern Ireland:
Applications if you live in Northern Ireland can be made using the Co-Ownership website, where you’ll find all the information you need concerning eligibility and the documents required to proceed.
Pros and cons of the Rent to Buy scheme
The Rent to Buy scheme may prove an attractive option to some prospective homebuyers but not to others. Here are the potential advantages and drawbacks of Rent to Buy that you should consider:
Pros of Rent to Buy
- You don’t need to worry that your landlord may want to sell your property halfway through your tenancy. Instead, you can relax knowing you’ll be allowed to stay for the length of your agreement.
- Subsidised rent (as per the schemes in England, Scotland, Northern Ireland) can give you a bit of breathing space while you put money away for your deposit.
- Getting a proportion of your rental money back if you decide to buy (as per the scheme in Wales) means you’re investing a little while you rent.
Cons of Rent to Buy
- The eligibility criteria can be very strict, so you may struggle to qualify for the scheme.
- The number of Rent to Buy homes in the UK is limited. This can reduce your options for the type of home you rent, and its location.
- Rent to Buy is only available for new build homes, which may come with snagging issues.
- If you end up spending the subsidised rent instead of saving it you may be unable to afford to purchase the home and instead have to move out.
Alternatives to the Rent to Buy scheme
Rent to Buy is just one of a number of government schemes that have been introduced to help people get on the property ladder – here are some more that could work for you:
Right to Buy
If you rent a council property, under the Right to Buy scheme you could be eligible to buy your property for less than the market price. To qualify, the home must be your main residence and you will have been a tenant of the property for at least three years.
» COMPARE: Right to Buy Mortgages
With a Shared Ownership mortgage, you have the option of buying a ‘share’ of a property, rather than all of it, to hopefully make the deposit requirement and monthly payments more affordable. Rent must still be paid on the part you don’t own, but if and when your finances allow, you can ‘staircase’ and gradually increase the stake that is yours.
» COMPARE: Shared Ownership Mortgages
Help to Buy Mortgage
If you’re a first-time buyer with a 5% deposit, taking out a Help to Buy Mortgage could see your lump sum supplemented by a loan equal to a further 20% of the value of the home you wish to buy (rising to 40% in London). No interest will be charged on the loan for five years, but you must be a first-time buyer to qualify.
» COMPARE: First Time Buyer Help to Buy Mortgages
First Homes scheme
Another option aimed solely at first-time buyers is the First Homes scheme. This initiative launched in July 2021 and could lower the cost of a new home by a minimum 30%. Your household income must be below £80,000 (or £90,000 in Greater London) to qualify.
Open a Lifetime ISA and the government will pay a 25% bonus on the savings you put aside for a deposit (or retirement, if you don’t spend it on buying a home). You must be between 18 and 40 to open one, but then have the option to save £4,000 a year into this tax-free account, until you are 50. You will be charged 25% should you withdraw the money before reaching the age of 60 if it isn’t for the purposes of buying your first home. This charge will also not apply if you are terminally ill.
Would I benefit from the Rent to Buy scheme?
Whether the Rent to Buy scheme is right for you will depend on your circumstances, so think about your long-term property goals and whether it will help you achieve them.
The Rent to Buy scheme offers tenant security and reduced monthly rent, so if you have a savings plan, it could benefit you. But at the same time, if the only houses available through the scheme are in areas you don’t want to live, you might feel too restricted.
Even if you do take part in the scheme, there’s no obligation to buy the house you’ve been renting if you decide it’s not the right step for you.
» MORE: Should you rent or buy?
Image source: Getty Images
Hannah has been writing about money since 2013. Formerly a copywriter for Virgin Money, covering credit cards, mortgages, pensions, and more, she now writes on personal finance for NerdWallet UK. Read more
Tim draws on 20 years’ experience at Virgin Money, Moneyfacts and Future to pen articles that always put consumers’ interests first. He has particular expertise in mortgages, pensions and savings. Read more