Rent to Buy is a government scheme aimed to make it easier to transition between renting and purchasing a home for a first-time buyer. Government Rent to Buy schemes in 2021 involves the provision of affordable subsidised rent.
These arrangements are sometimes called Rent To Own, Intermediate Rent, or Rent to Save. All, nevertheless, have the same aim – to make buying a home affordable for more people.
Rent to Buy schemes can be found in Northern Ireland, Scotland, and England. They allow prospective buyers to rent a new build property at a subsidised rent that is around 20% under the market rate to help people save money for a house deposit.
In this article you’ll find:
- How does rent to buy work in 2021?
- How does rent to own work in 2021?
- Rent to buy homes in London in 2021
- Am I eligible for rent to buy schemes?
- Is a rent to buy agreement right for me?
- How to register for a shared ownership rent to buy scheme
What is rent to buy?
Rent to Buy is a Government-backed scheme created to help first-time buyers who are struggling to buy a house. The scheme offers subsidised rent to help ease the transition from renting to buying a home.
There are several names in use for the Rent to Buy scheme. For example, some schemes are called Buy Rent Save, Intermediate Market Rent, Part Buy Part Rent, or Try Before You Buy. Each Rent to Buy scheme has limited availability. The precise number will vary between different local authorities. Usually, the homes will be new-build properties.
How does the rent to buy scheme work?
In the UK, most rent to buy properties have shorthold tenancies and are available at a lower rate of 80% of the local average rent.
A tenant can usually choose between a house, a flat or even a bungalow. With a Rent to Buy scheme, it is expected that tenants will use the opportunity to use this short period during which they pay reduced rent to save up a cash deposit. This will then allow them to apply to purchase the property under shared ownership at a later date.
You rent the house or flat, paying the market rate for a period of up to five years. When 2 years have elapsed you can decide to buy your home. At that time, you receive 25% of the rent paid so far as well as 50% of the increase in the market value of the property since the date you moved into it. This can be used as your deposit on your purchase.
Am I eligible for the rent to buy scheme?
Rent to Buy is a great opportunity for homeownership if you can meet the following criteria:
- You have an annual household income of £60,000 or under. Your household could be a single person, or yourself and a partner or friend.
- You’re either a first-time buyer or once owned property but now have insufficient income to buy a home at today’s prices.
- You have a good credit history
There are other eligibility criteria and specific circumstances that you must meet too. These vary depending on the area you’re in and which housing association is offering the part buy part rent property.
Certain groups typically have priority for rent to buy arrangements. They include people currently renting social housing from a local council or authority, or from housing associations.
Priority will also usually be given to people who fit in with local priorities and to first-time buyers.
You’ll be able to check whether you qualify for a Rent to Buy arrangement by checking with local agents.
Unfortunately, not everyone qualifies for Rent to Buy. There are some other financial incentives and government schemes, though, which help provide affordable housing and assist those who cannot currently afford homeownership to purchase the property of their dreams.
These include first time buyers’ property loans, affordable shared home ownership arrangements, and providers of tax-free savings accounts that allow prospective purchasers to start saving for a deposit.
Is a rent to buy a good idea?
If you’re eligible for a part rent part buy agreement, you’ll need to decide if it’s right for you. You can weigh up the benefits, risk and value of rent to buy for you depending on the offer you receive and whether or not you could find it affordable to pay your monthly rent, while also saving for a down payment on your own home.
A major advantage of rent to ruy is that it could give you a way of buying a share of a property that would otherwise never be affordable. There are, however, some pros and cons associated with shared ownership.
Also, the registered providers of these schemes are social landlords. This can give those who are used to renting from their local authority greater security.
There are financial downsides to consider too. For example, if the price of your home increases while you’re renting, you might find buying is no longer affordable for you.
If you rent for a long time, this increases your risk. If you live in Wales, this shouldn’t be as much of a problem since you’ll receive 50% of that increase back so you can use it as a credit towards buying.
This makes it more affordable to get a mortgage and purchase your property, even if it’s value goes up.
If you’re interested in getting registered for affordable Rent to Buy housing and eventually getting a mortgage so you can buy a share of the property, it’s important to work out the financial implications and the local registered housing providers first.
You’ll need to consult with mortgage providers to determine your regular payments to see if they’re affordable and find out whether they’ll be willing and able to extend credit to purchasers who are only buying a share of their home.
You’ll also need to find out about any fee you’ll be required to pay which will be added to the expense of moving home.
Is it better than having a mortgage?
This completely depends on your financial circumstances. If you’re unable to afford a deposit due to the full purchase price or if you have poor credit, it could be the only option for you. If you’re able to afford the monthly payment.
Once you’ve found a suitable property, you may be placed on a waiting list before you’re able to move into the property. As with most Government schemes, there are plenty of people who are trying to get onto the housing ladder and need a helping hand.
It’s always best to check with a local agent and explain your situation before you commit to rent to buy or buying.
How to register for a shared ownership scheme
This guide will help you learn how to apply for a Rent to Buy scheme that is registered in England, Northern Ireland or Wales:
- First, register with your registered in England Help to Buy agent. It’s their job to assess the application before adding you to their latest database. This allows them to make direct contact with you once a property becomes available that suits your needs.
- Participating landlords will accept your Rent to Own application if you’re a Welsh applicant.
- If you’re in Northern Ireland, applications are made through the Co-Ownership website.
- Wherever you’re based, it’s important to be proactive. You need to search the website of your Help to Buy Agent regularly.
- If you spot a property that you like, telephone the number on the advert to see if you would fit the necessary criteria.
Rent To Buy Homes In London in 2021
In London, there is a slightly different Rent to Buy arrangement. It is called “London Living Rent”.
A tenant in the capital will rent their home for under its usual market rent. This allows them to save a deposit. Each tenancy lasts for a minimum of 3 years. During that time, the tenant is prioritised for housing association shared ownership properties.
This brings homeownership within reach of those who are keen to get on the property ladder but who cannot afford to pay the high housing costs in this area of the country while they save up to buy a property.
The capital’s Rent to Buy arrangement has properties available at a typical rent of about £1000 per month (2/3rds of the typical rent paid in the capital).
The exact amount of rent payment will vary depending on the area, however, all are roughly a 3rd of the area’s average rent.
The scheme is designed to benefit those who would otherwise have to make a very high monthly rental payment to a private landlord which would prevent them from saving enough money to ever invest in homeownership.
