The government has some schemes which are designed to help people buy a home. This article will tell you all you need to know about the Rent to Buy scheme.
What is Rent to Buy?
Rent to Buy is also referred to as Rent to Save, Rent to Own or Intermediate Rent. It is a government scheme where you start out by renting a new build home 20% below the market rates. Over time you will transition to becoming the owner of the home, or you can move on.
In England, Scotland, and Northern Ireland, Rent to Buy allows you to rent a new built home at approximately 20% below the market rates for up to 5 years. During the period you will be renting, you will have the option to buy the property or buy it under a Shared Ownership scheme. However, when the term ends, you have to either buy the property or move out.
In Wales, the scheme is referred to as Rent to Own, and it works slightly differently. You will rent a property and pay the market rates for up to five years. Further, after the first 2 years, you have the option to purchase the property.
Additionally, if you decide to buy, the government will give you 25% of the rent you have paid and 50% of any increase in the property's value since the time you first moved in for you to use as a deposit.
How does Rent to Buy work?
- Specific homes are made for people to rent on a shorthold tenancy basis. The rent charged is at 20% below the market rates.
- It is expected that you will be able to save up due to the reduced rent. The money you save will be used towards a deposit when you want to purchase the property or a share in it.
- Generally, the lease period can be anywhere between 6 months and 5 years. This depends on where the property is located.
- You can also make an outright offer or buy a part of it, at any time during the lease.
- Availability under this scheme is minimal. The exact number varies by the local authority.
How does Rent to Own work?
- You will rent a home at market rates for up to 5 years.
- Between the second and fifth year, you can apply to purchase the property.
- The government will give you 25% of the rent you have paid and 50% of any increase in the property's value since the time you first moved in for you to use as a deposit to purchase the property.
What is London Living Rent?
For those who live in the capital, the scheme is known as London Living Rent, and it works the same way as Rent to Buy.
What is the eligibility criterion for Rent to Buy?
You will be eligible if:
- Household income – Your household income has to be £60,000 a year or less.
- You have to be a first-time buyer or if you do not own any property at all.
- You should have a good credit history.
Other eligibility criteria will vary depending on the housing association through which the property is being offered. You will find that priority is usually given to existing housing association tenants and council tenants, and first-time buyer.
You should check with the local Help to Buy agent to determine whether you qualify for Rent to Buy. If you don't qualify for Rent to Buy, you can benefit from mortagages for the first-time buyer, shared ownership scheme and tax-free saving accounts.
Should you go for Rent to Buy?
If you are eligible for Rent to Buy, it does not necessarily mean you will get the most value. The offer varies so much across the housing associations; you need to read the small print and be careful of what is being offered.
One significant advantage of Rent to Buy is that you can purchase properties which you otherwise will not be able to afford. One way of saving during the time you rent is to make to get a Lifetime ISA.
However, you should be aware that during the period you rent, if the property value rises, it may even go beyond what you can afford.
Click here if you want to learn about other afford home ownership government schemes.