Dreaming of homeownership but struggling to save for a deposit? A Rent to Buy mortgage could be the solution that turns your property ownership dream into reality.
High rent rates continue to be a significant barrier for many potential homeowners, preventing them from saving for a deposit and transitioning from renting to buying.
According to Statista, the average cost of rent stood at £2,101 in London and £1,113 outside London as of July 2024.
Rent to Buy offers an alternative by allowing you to rent certain properties at a reduced rate, making it easier to save for a deposit and eventually become a homeowner.
Here’s everything you need to know about Rent to Buy mortgages in the UK.
What is Rent to Buy?
Rent to Buy is a UK government-based initiative designed to help individuals who cannot currently afford to buy a home but wish to do so in the future.
It allows you to rent a property at a discounted rate, typically 20% below market rent, for a specified period.
The savings from this discounted rent can be used to build up a deposit to buy the property.
Once you’ve saved enough for a deposit, you can purchase the property outright using a mortgage or through a shared ownership scheme, where you buy a share of the property while continuing to rent the remaining portion.
How Does Rent to Buy Work?
To begin with, you need to apply for a property that falls under the Rent to Buy scheme.
If you’re eligible and the property is available, you can move in under a tenancy agreement. The rental period typically ranges from 6 months to 5 years, depending on the property.
The scheme is primarily run by housing associations, meaning private landlords cannot offer Rent to Buy properties.
During the discounted rental period, you’ll be expected to save for a deposit, with the ultimate goal of purchasing the property, though there is no obligation to do so.
You can buy the property or a share of it at any point during the rental period. If you reach the end of the agreed period and still can’t afford to buy the property, you can request an extension or choose to move out.
Eligibility Criteria for Rent to Buy
To qualify for Rent to Buy, you must meet the following criteria:
- First-time buyer: You should not already own a property.
- Employed: You must be employed full-time or part-time.
- Capable of saving: You need to demonstrate that you can pay your rent and save for a deposit at the same time.
Even previous homeowners who have returned to renting (perhaps due to a separation) can qualify.
Your credit history and income will likely be checked to confirm your eligibility. The exact criteria may vary between housing associations, so it’s worth checking with your local authority.
It’s important to note that failure to adhere to your tenancy agreement, such as missing rent payments, could result in being removed from the scheme.
Is Rent to Buy Available Across the UK?
The Rent to Buy scheme is available in England, excluding London, where a separate scheme called London Living Rent operates.
London Living Rent is targeted at middle-income households who are looking to build savings for a deposit while living or working in London.
In Northern Ireland, a similar scheme called Rent to Own is available. However, in Wales, the Rent to Own scheme is closed to new landlords, though some properties may still be available to applicants. Scotland does not have an equivalent Rent to Buy scheme.
Advantages of Rent to Buy
Affordability: You benefit from lower monthly rental payments, typically 20% below market rent. This allows you to save for a deposit more easily while continuing to live in the property.
Try before you buy: Renting the property before purchasing gives you a chance to experience living there and assess whether the home and area meet your long-term needs.
Enhanced access to properties: Rent to Buy gives you access to properties that might otherwise be unaffordable. It also enables you to save a larger deposit, improving your chances of securing a favourable mortgage.
Security: The scheme guarantees you the opportunity to buy the property, so there’s no risk of another buyer purchasing the property during your tenancy.
The scheme is government-backed and run by social landlords, offering more support and stability compared to private renting.
Flexibility: There is no obligation to purchase the property. If your circumstances change, you can decide not to buy at the end of the rental period.
Disadvantages of Rent to Buy
Limited property choices: The Rent to Buy scheme only covers specific properties, mostly new builds. This could limit your options in terms of location and type of property available.
Rising house prices: You will have to purchase the property at its current market value, not the value when you first moved in.
If property prices rise significantly during the rental period, the house may become less affordable by the time you’re ready to buy.
Limited availability: The number of Rent to Buy properties varies between local authorities, and availability can be limited. There may be long waiting periods in some areas.
No guarantee of mortgage approval: Even after saving for a deposit, securing a mortgage is not guaranteed. Approval depends on your financial circumstances and creditworthiness at the time of application.
Final Thoughts
Rent to Buy mortgages offer a valuable stepping stone for individuals struggling to save for a deposit while paying high rent.
The scheme makes homeownership more accessible by offering reduced rent and giving you the chance to save towards buying a home at your own pace.
However, Rent to Buy is not the perfect solution for everyone, and it’s important to weigh the advantages and disadvantages based on your personal circumstances.
If you’re unsure whether Rent to Buy is the right choice for you, consulting a mortgage advisor or broker with experience in Rent to Buy mortgages can help you make an informed decision.
Call us today on 03330 90 60 30 or contact us to speak to one of our friendly advisors.
Sources and References:
- [Statista Average Rent in the UK](https://www.statista.com/statistics/752203/averagecostofrentbyregionuk/statisticContainer)
- [London Living Rent Scheme](https://www.london.gov.uk/programmesstrategies/housingandland/improvingprivaterentedsector/londonlivingrent)
