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Rising property prices might be good news for sellers, but they certainly make life a lot harder for those looking to get on the ladder. In fact, according to some lenders, the situation is as hard as it has been for over 70 years. What’s more, it doesn’t look set to improve anytime soon. As a solution, first-time buyers are finding more creative ways to secure their first home. We’ve talked previously about shared ownership, which is why today we’re going to take a closer look at Rent to Buy.
Just in case you weren’t aware, Rent to Buy is a scheme that’s designed to help (mostly) first-time buyers secure a deposit for their home. Under the scheme, tenants pay a reduced rent, typically at 80% of market value, with the expectation that they will save up a deposit to buy a property.
But how does it work in practice? And what are the benefits and drawbacks of the scheme? To help you decide whether Rent to Buy is the right option for you, in today’s post, we’ll take a closer look at some of the advantages and potential pitfalls of the arrangement. Let’s dive in.
Looking to get on the property ladder? If you’re exploring Rent to Buy, we have a wide range of homes to suit every lifestyle and budget. View our available properties and take your first step to homeownership today.
There are a few different versions of rent to buy, depending on where you are in the UK. Northern Ireland has its version of the scheme, Rent to Own, as does London, which is covered by London Living Rent. In Wales, the scheme has closed to new landlords, and it isn’t available in Scotland. In this article, we’ll be talking about Rent to Buy as it exists in England outside of London.
The concept is pretty simple. You rent a property at a reduced rate (often at around 80% of market value), allowing you to save up enough money to put down a deposit on it at a later date. This purchase can be either a full purchase or as part of a shared ownership scheme, and the lease period can last for up to five years.
To be eligible for the scheme, applicants must be in full or part-time employment, a first-time buyer and able to save money toward a deposit. To verify this, landlords might check your income and credit history. There’s also a maximum income threshold – if you earn over £60,000, you won’t be able to apply.
Rent to Buy offers a lot of benefits to prospective homeowners, with the most obvious being that it immediately frees up income, which can then be put towards saving for a house. As the cost of renting continues to rise, that’s certainly a big positive for many first-time buyers looking for an attainable way of getting on the property ladder.
Another benefit that goes hand-in-hand with the above is that Rent to Buy gives tenants the time to work on building a positive credit score before they go ahead with a mortgage application. There’s no minimum requirement in the UK, but having a higher credit score increases the chances of success.
We’d also highlight the benefit of having first refusal on a home. With competition for property hotting up in recent years, first-time buyers are often squeezed out by other buyers with deeper pockets. But under the Rent to Buy Scheme, tenants should be guaranteed first refusal on a home.
Finally, it’s worth noting that the scheme is flexible, giving renters the chance to back out of a purchase if it doesn’t feel right. That means tenants can try moving to a new area to get some idea of what it’s like to live there before buying a home, potentially saving them a lot of hassle if it doesn’t work out.
Sold on the benefits of Rent to Buy? Find a home near you and take your first step towards ownership.
Despite all the benefits of Rent to Buy, it’s not without a few drawbacks. For starters, it narrows down your options to properties that belong to the scheme, which means a fairly limited selection of new-build homes (in most cases).
This selection is further limited by the Rent to Buy scheme not being available in some areas (e.g., London). You may also need to join a waiting list if demand is particularly high where you live.
Finally, you will have to pay the purchase price of the property at the time of sale and not when you begin renting it under the scheme. This is likely to be more than when you moved into the property, so some planning in advance is necessary to avoid any unexpected surprises.
If you’re dreaming of finally setting foot on the property ladder, then Rent to Buy could be a great way of going about it. You’ll get enough financial breathing room to be able to save for your home and improve your credit score, as well as the chance to live in your property before you commit to a purchase.
At Plumlife, we’re proud to support first-time buyers in securing their first home. We work with some of the UK’s top house builders to offer a superb choice of new-build developments under the Rent to Buy scheme. Head over to our property search to see what we’ve got to offer in your area. Or, if you’d like to learn more, get in touch with one of our helpful team members.
And just in case you’d like to keep reading, here are a few more blog posts that we think you’ll love:
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