A complete guide to the Rent to Buy/Own scheme

Row of British houses

It can often get confusing when it comes to all the different ways to buy a house, and you might be wondering if there is any difference between Rent to Own and Rent to Buy, so in our guide here, you’ll find out more about what it all entails.

We’ll explain all about the Rent to Buy scheme, including whether or not Rent to Buy is a good idea, the eligibility criteria for Rent to Buy and how it works if you’re claiming benefits.

What is Rent to Buy/Rent to Own?

The Rent to Buy scheme, also known as the Rent to Own scheme in Wales, is a government scheme that is designed to ease the transition from renting to buying, usually for first-time buyers.

How does Rent to Buy work?

Rent to Buy works by the government subsidising rent for a couple of years in Rent to Buy homes.

  • A shorthold tenancy means that homes are made available to rent at a reduced rate than that of local market rents, usually 80%.
  • The idea is that it gives the renter a better chance to save for a cash deposit so that they can buy a share of the home later, as they will be paying less rent during the shorthold period.
  • Once the shorthold period has finished, the renter can then purchase the property via shared ownership, or they can choose to move to a different property.
  • Shorthold lease periods typically last anywhere from 6 months to five years, depending on the type of property and the other circumstances surrounding it.
  • At any time during the lease, the renter is able to make an outright offer on the property, or they can choose to look into a part-rent, part-buy scheme.
  • One thing to note is that different housing associations will have different names for the Rent to Buy scheme; some call it Try Before You Buy, sometimes it’s called Rent Save Buy and in Wales, it’s known as the Rent to Own scheme.

You might like: Questions to ask when buying a house

How does Rent to Own work?

The Rent to Buy scheme is known as Rent to Own in Wales and while it largely works in the same way, there are a few notable differences that you should be aware of.

  • Rent to Own schemes involve renting a property at a market rate for up to five years.
  • Unlike Rent to Buy, however, the renter can choose to apply to buy the home between the end of the second year and the end of the five years.
  • When you apply to buy the house, you will receive 25% of the rent that you’ve already paid back, as well as 50% of any increase in the value of the property that’s occurred since you originally moved in.

The pros and cons of Rent to Buy

There are both advantages and disadvantages of using the Rent to Buy scheme, check out some of them below to help make your decision.

Pros

  • If you have a poor credit score, you will still likely be eligible for Rent to Buy as it’s designed for people who have bad credit to help them get on the housing market.
  • It gives you the option to “test drive” a house, hence the nickname “Try Before You Buy” - you can see whether you actually like living in the house before you commit to buying it.
  • You can lock in a purchase price right now, so even if you can’t buy the house right away, the price that’s locked in now is what you’ll pay if you do eventually decide to purchase the house. 

Cons

  • You have less control over the property to begin with until you decide to buy it, which means you can’t make maintenance or aesthetic changes to the property.
  • If you plan on using the Rent to Buy option to try and improve your credit score, it might not always work out as planned, or it could take a very long time to see any improvement, so it’s not always the best option if you just want to try and improve your credit instead of renting traditionally.
  • If house prices fall, you might not be able to renegotiate a lower house price, which could mean that you lose out on the money that you offered to have the option to eventually buy the house. 

Read more: What is a good credit score?

Will I qualify for Rent to Buy?

In order to be eligible for Rent to Buy, you will need to meet the following criteria:

  • You must have a relatively good credit history - you can check your credit rating and credit history before you apply to Rent to Buy to see if you would be eligible.
  • Your household must earn less than £60,00 per year - this could just be you, you and your partner or you and your friend. As long as the overall earnings of a household are less than £60,000, you should be eligible.
  • You should be a first-time buyer, or if you did once have your own home, you mustn’t be able to afford to buy one now.

Alternatives to the Rent to Buy option

If you’ve weighed up the pros and cons of Rent to Buy and you’re still not sure what to do, you should consider looking into other alternatives to Rent to Buy so that you’re aware of all your options before you commit to a decision.

Help to Buy equity loan

This will lend you up to 20% interest-free for five years (or 40% in London) and it’s usually only for new-build houses.

Shared ownership

Shared ownership agreements enable you to buy a portion of a new build house and then rent the rest, with the option to buy more shares in the property in the future.

Right to Buy

This allows council tenants to purchase a house at a discounted price.

Of course, all the above come with their own pros and cons as well, so it’s important to carry out thorough research before coming to a decision.

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