Rent to Buy Mortgages

If you dream of owning your own home but are struggling to save for a deposit, you may want to consider a rent-to-buy mortgage.

With rent-to-buy, you rent a property for a certain time at a subsidised rate and then can buy it if you wish. While this may sound appealing, there are several caveats and considerations to consider before going down this route.

In this comprehensive guide, we’ve gathered everything you need to know, including how the Rent to Buy initiative works, who’s eligible, and why it’s a good idea to talk to a broker first.

What is a Rent-to-Buy mortgage?

A Rent to Buy mortgage helps people struggling to get on the property ladder transition from renting to buying.

Rent to Buy, also known as Rent to Save and Rent to Own in Wales, is a government-backed initiative that works slightly differently depending on where in the UK you live.

In England, Scotland and Northern Ireland, you can rent a new-build property, typically for six months up to five years, for a reduced rate of around 80% of the market rate. The hope is that you’ll save the remaining 20% and put it towards a deposit to buy the house in the future, although there’s no obligation to do this.

In Wales, you rent a property at market rate for up to five years; after two years, you can choose to buy it. If you do, you’ll get back 25% of the rent you’ve paid and 50% of any increase in the property’s value since you started renting it to use towards a deposit.

You can buy the property with a mortgage or through the government’s Shared Ownership scheme, which lets you buy a share of the property while paying rent on the remaining share.

It’s important to note that if you buy the property, you’ll pay the current market value, not its value, when you started renting it.

Where is the scheme available?

Rent to Buy is available in England, Scotland, and Northern Ireland. However, availability is often limited and varies between local authorities. If there aren’t many Rent to Buy properties in your area, you may be added to a lengthy waiting list. You’d have more choice if you rented or bought on the open market.

Rent to Own is now closed to participating landlords in Wales, and no new schemes will be funded. However, some properties to be offered under the scheme are still being built and may, therefore, be available to new applicants who wish to apply.

London Living Rent

London Living Rent is the version of Rent to Buy for people living in the capital. It’s similar in that you rent a property at a reduced rate and are encouraged to save the rest towards a deposit. However, tenancies are for a minimum of three years.

The amount of rent you pay will depend on where in London you live, but the average rent is about £1,000, which is around three-quarters of the average rent in the capital.

Who’s eligible?

Rent to Buy is available to first-time buyers or anyone who used to own a property but can no longer afford to buy in the current market.

Your household—which can include a single person or you and a partner or friend—must earn £60,000 a year or less.

You must also have a good credit history.

It’s worth noting that housing associations offer rent-to-buy properties. Different associations have eligibility criteria, so you should check with your local association to see whether you qualify for the scheme.

How to get a Rent-to-Buy mortgage

As mentioned above, Rent to Buy is offered by housing associations.

There are different ways of applying depending on where you live.

Mortgage rates if you use the scheme

The interest rate on your mortgage won’t be any different to what you’d end up with if you weren’t applying through Rent to Buy.

You have several options if you decide to buy your Rent to Buy property. You can either use a traditional mortgage or the Shared Ownership scheme. With the latter, you purchase a share of the property with a mortgage and then rent the remaining share from a council or housing association.

Whichever route you take, having used the Rent to Buy scheme shouldn’t impact the interest rate you pay on your mortgage. Your lender will use their standard criteria to determine the rate, including your deposit size and credit history.

Is the Rent-to-Buy scheme right for you?

If saving for a deposit is the main obstacle to getting on the property ladder, it could be worth speaking to a mortgage broker about rent-to-buy.

However, to determine whether it’s the best option, you should research other options, such as buying your rental property from your landlord.

We’ve rounded up some alternatives for you below…

Alternatives to consider

Rent to Buy is just one option for people struggling to climb the housing ladder.

There are several other government schemes available, including…

Get matched with a broker who specialises in Rent-to-Buy mortgages.

Rent to Buy could be the answer for anyone struggling to save a deposit to buy a home. However, before applying, it’s worth talking to a broker. They’ll be able to review your circumstances and advise whether you can afford to buy the property within the next five years. They’ll also be able to suggest alternative schemes which would be more suitable for you and could even speed up your home buying process.

Our broker matching service can connect you with a broker who has experience helping struggling first-time buyers get onto the property ladder.

Call us on 0330 818 7026 or enquire and get matched with an expert today for a free initial conversation.