POSTED 16 October 2018 Mortgages

What is 'Rent to Buy' and How does it Work?

If you’re looking to purchase a property but can’t afford a deposit, the Rent to Buy scheme may be right for you.

What is 'Rent to Buy'?

Rent to Buy was set up by the Government to assist first time homeowners to purchase a property without the need to put down an immediate deposit. It offers buyers the chance to rent a newly built home at just 80% of the market rate, for anywhere between five months and six years.

By paying cheaper rent on your home, the idea is that you will have the chance to save up the cash reserves required to put down a deposit on the property. While you rent, you have the option to buy either all or part of the property. Once the term finishes however, if you decide not to make an offer then you must move out.

Am I eligible?

You may be eligible for Rent to Buy if:

  • You earn less than £60,000 as a household, this may be one person or multiple people
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  • You are a first time homebuyer
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  • You have a good credit history

Unfortunately though, it’s not quite as straightforward as simply fulfilling these criteria.

Depending on which housing association a property is offered through, there may be other requirements you need to meet. Furthermore, priority may be given to those who fall into certain categories, such as existing housing association tenants and council tenants.

To find out for certain whether you’re eligible for the Rent to Buy scheme, you’ll need to contact your local Help to Buy agent.

Is 'Rent to Buy' right for me?

Rent to Buy certainly has its plus points. Chiefly, it offers you the chance to get on to the property ladder even if you’re not able to put down a deposit.

However, not everyone is eligible for the scheme, and those who do meet the criteria only have a certain pool of properties to choose from. With a limited selection, there is no guarantee that you’ll find a place you like.

If you do find a property to your taste, you’ll need to carefully consider the length of the lease that will be most beneficial to you. A long lease, say of around five years, offers plenty of time to save up a deposit. However, by the time a lease of this length ends, house prices may have risen significantly, and potentially beyond your financial grasp.

A short lease negates this risk but doesn’t provide you much time to save up, so you’ll need to be pretty confident that you can build up the cash reserves required to make an offer before the contract expires.

Next steps

If you think the Right to Buy scheme would suit your circumstances, the first thing you need to do is register with your local Help to Buy agent.

They’ll be able to confirm your eligibility as well as discuss other Help to Buy options that may be available to you.