With the rental climate frequently exhibiting unpredictability, saving the money for a house deposit can be daunting. The Rent-to-Buy scheme in England attempts to resolve this, by making the transition from renting to buying a home much more manageable.
What is the Rent-to-Buy Scheme
At the heart of the Rent-to-Buy scheme is one simple principle. Tenants rent a property at a discounted rate (usually 20% below the average market rent) for a period of typically anywhere between 6 months to 5 years. During this contract, tenants put aside the money saved from the decrease in rent to build up a deposit fund. At the end of the tenancy, the tenant ideally buys the property or moves out. The tenant can buy the property at any time during the tenancy, provided that they have saved a deposit of a least 5% of the property value, and have an approved mortgage.
To achieve eligibility for the Rent-to-Buy scheme, individuals must meet certain criteria. Household income must be £60,000 or less per annum and the tenant(s) must be a first time buyer with a good credit history. They could also be a previous homeowner who can no longer afford to purchase a property.
Advantages of the Rent-to-Buy Scheme
There are a number of advantages of the Rent-to-Buy Scheme. Tenants have cheaper monthly rent compared to similar rental properties in the area, facilitating the build-up of a deposit fund over the rental period. Living in a property prior to purchase may facilitate the purchase of a property that would otherwise be out of budget. It also allows tenants to get a feel for the house and community before committing to ownership. Tenants have priority when it comes to buying the home, and may be offered a purchasing pathway through shared ownership, requiring a smaller deposit and allowing for staircasing.
Disadvantages of the Rent-to-Buy Scheme
However, it must also be noted that there are certain disadvantages to Rent-to-Buy. With the unpredictability of the rental market comes the possibility that house prices may rise, potentially exceeding the tenant’s budget. On the tenant’s side, plans/ circumstances may change and also possibly prevent them from completing purchase of the property. Due to limited availability of properties and areas in which the scheme operates, tenants may not be able to find a suitable property. They may also have to join a long waiting list, delaying their progress. Lastly, buying a home through shared ownership may make it more challenging to sell in the future.
Variations
Across the United Kingdom, there are a few variations of the Rent-to-Buy scheme. In Wales, tenants receive 25% of rent paid over the tenancy and 50% of the increase of the property’s value (if any). Through the Rent-to-Own scheme, tenants can use the money as a deposit to purchase the property. In Northern Ireland, tenants are supplied £20 for every £100 paid in rent (20%) through the Rent-to-Own scheme, which is used to create a deposit fund. Within London, a specific version of the Rent-to-Buy scheme called London Living Rent exists. This determines rent based on 1/3 of the average local household incomes, reviewed annually by the Greater London Authority (GLA).
The rent-to-buy scheme provides a valuable opportunity for tenants to work towards home ownership. It is a worthwhile option for those looking to take their first steps onto the property ladder.