Rent to Buy Mortgages

Struggling to get on the housing ladder? Find out how Rent to Buy mortgages can help with this comprehensive guide.

Are you considering a Rent to Buy mortgage?

Home Mortgage Application Rent To Buy Mortgages
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Updated: May 2, 2024

If your dream is to own your own home but you’re 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 period of time at a subsidised rate and then have the option to buy the property if you wish. While this may sound appealing, there are several caveats and considerations to bear in mind 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 who are struggling to get on the property ladder transition from renting to buying.

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

In England, Scotland and Northern Ireland, you’re able to rent a new-build property, typically for between 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 and 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 do buy the property, you’ll pay the current market value, not the value of the property when you started renting it.

Where is the scheme available?

Rent to Buy is on offer in England, Scotland and Northern Ireland. However, availability is often limited and varies from one local authority to another. If there aren’t many Rent to Buy properties in your area, you may find you’re added to a lengthy waiting list. You’d definitely have more choice if you rented or bought on the open market.

In Wales, Rent to Own is now closed to participating landlords and no new schemes will be funded. However, some properties to be offered under the scheme are still being built and therefore may 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 to put 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 average rents are about £1,000, which is around three quarters of the average rent in the capital.

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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 be 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 Rent to Buy properties are offered by housing associations and different associations have their own eligibility criteria so you should check with your local association whether you’d 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.

You need to register with your local Help to Buy agency who, if you’re eligible, will be able to tell you when a suitable property becomes available.

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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.

If you decide to buy your Rent to Buy property, you have a couple of options. You can either use a traditional mortgage or you can use 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 have an impact on the interest rate you pay on your mortgage. Your lender will use their standard set of criteria to determine the rate including factors such as your deposit size and credit history.

Is the Rent to Buy scheme right for you?

It could be worth speaking to a mortgage broker about Rent to Buy if the main obstacle between you and the property ladder is saving for a deposit. However, in order to determine whether it’s the best option, you should research some of the alternatives as well.

We’ve rounded them up for you below…

Alternatives to consider

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

There are several other government schemes available including…

Help to Buy is available to first-time buyers and lets them buy a home with a deposit of just 5%. The rest of the purchase price comes from a government-backed loan of up to 20% (40% in London) and a mortgage. The loan is interest-free for the first five years.

Shared Ownership allows you to buy a share of a property and then rent the remaining share from a council or housing association. If and when you can afford it, you can buy more shares in your home, which is known as staircasing. The more of the property you own, the less rent you pay.

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

For anyone struggling to save a deposit to buy a home, Rent to Buy could be the answer. However, before applying, it’s worth talking to a broker. They’ll be able to review your circumstances and advise whether you’ll be able to 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.

Give us a call on 0808 189 2301 or make an enquiry and get matched with an expert today for a free initial conversation.

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FAQs

Rent to Buy leases typically last between six months and 5 years. You can make an offer to buy all or part-buy the property at any time during the lease. In Wales, you can make an offer to purchase the property after two years.

Not in England, Scotland or Northern Ireland. Right to Buy properties are only available through housing associations.

In Wales, private landlords were able to participate in the scheme. However, the scheme is now closed and no new schemes will be funded.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

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Pete Mugleston

Mortgage Advisor, MD

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