Rent to Buy scheme: How does it work?

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Rent to Buy is a program by the government that helps people move from renting to owning a home by offering lower rent. It is also called Rent to Save, Rent to Own, or Intermediate Rent.

In England and Northern Ireland, you can rent a brand-new house for about 20% less than the usual price for up to five years (the exact time can change depending on the house). During this time, you can choose to buy the house or part of it through a Shared Ownership plan. At the end of the time, you need to either buy a part of the house or find a new place to live.

In Wales, the program is called Rent to Own and it is a bit different. You rent a house at the normal price for up to five years. After two years, you can decide to buy the house. If you do, you will get back 25% of the rent you have paid and half of any increase in the house’s value since you started living there, which you can use as a deposit to buy the house.

However, this program is not available in Scotland.

How does Rent to Buy work?

Properties are offered for rent under a temporary agreement called a shorthold tenancy at 20% less than the usual local rent prices. This arrangement is not binding, but it is hoped that by paying lower rent, you will be able to save money for a down payment to eventually purchase part of the property. 

Once the shorthold tenancy period ends, you have the option to buy the home through a shared ownership plan or leave the property. The duration of the lease can range from half a year to five years, based on the specific property. 

At any point during your lease, you have the liberty to propose a full purchase or explore a scheme that allows you to pay rent and buy simultaneously. Housing associations may refer to this arrangement by various names like Try Before You Buy or Rent Save Buy, so it is important to understand the agreement’s details before committing. 

Please note that only a few homes are available through this program, and the number differs by local area.

How does Rent to Own work?

Under the Rent to Own program, you can lease a house at the usual rental price for a maximum of five years. After two years and before the five-year term is up, you have the option to purchase the house.

When you decide to buy the house, you will get back 25% of the rent you have paid, as well as half of any rise in the home’s value from the time you started renting. You can use this returned money as part of your down payment to buy the house.

London Living Rent scheme

In London, the Rent to Buy program is called London Living Rent. It works just like Rent to Buy. You can rent a home for a price that’s lower than what most people pay, which helps you save money for a deposit. You can rent for at least three years, and during this time, you get a better chance to buy a home through shared ownership, helping you start owning a home.

Every year, the Mayor of London sets the London Living Rent for each area, based on what a typical family earns and the size of the home. This rent is usually much cheaper than what you would normally pay in most areas.

Am I eligible for the Rent to Buy scheme?

You can apply for the Rent to Buy scheme if:

  • Your family makes £60,000 a year or less. This could be just you, or you with a partner or friend.
  • You are buying a home for the first time, or you once owned a home but now cannot afford one without help. You have a history of paying bills on time and managing your money well.

However, there are more rules to follow, and they change based on the organization offering the home. Usually, people who already live in housing association homes, council homes, those who match the area’s needs, and those buying a home for the first time get priority.

To see if you can join the program, visit the government’s Own Your Home website and look for the Rent to Buy section. If you’re eligible, get in touch with housing associations near you to look for a home. If you are in London, reach out through the Homes for Londoners website, which is part of the Mayor of London’s plan to help people own homes.

How much will I save with Rent to Buy?

With the Rent to Buy program, your rent is usually about 80% of the market rate. Here is an example to show how much you could save:

  • Market rate: £1,000 per month
  • Rent-to-buy rent: £800 per month
  • Monthly savings: £200
  • Total saved after three years: £7,200 (plus any interest on your savings)
  • Total saved after five years: £12,000 (plus any interest), which can be used as a deposit for buying a home.

Advantages and disadvantages of the Rent to Buy scheme

Rent to Buy has its advantages and disadvantages to think about:

Advantages

  • You might get to live in a place that would usually be too expensive.
  • Staying in the house first lets you really get to know it and the area around it.
  • You get the first shot at buying the house, so no one else can buy it before you.
  • You might have the chance to buy the house with the Shared Ownership program.
  • You are renting from a social landlord, which can make you feel more secure.

Disadvantages

  • If the price of houses goes up while you are renting, the house might become too expensive for you. The longer you rent, the more this could happen. In Wales, the Rent to Own program gives you back half of any increase in the house’s value to help with your deposit.
  • There are not many houses to choose from.
  • You might have to wait in line to get into the program.

Should I do it?

If you qualify for Rent to Buy, whether it’s a good fit for you will depend on the specific house, what the housing group is offering, and if you use the lower rent to help save for a down payment. Since what is offered can be very different from one housing group to another, it is important to read all the details carefully to decide if it is right for you.

If you decide to go for it, we suggest finding ways to spend less while you are renting to save more. Our website has lots of tips on how to cut costs, from reducing your energy bills to making a household budget. You can find all these tips in the section about lowering your bills.

If you are thinking about signing up and later buying the house, talk to an independent mortgage advisor to figure out the monthly costs. Make sure to ask if banks are usually okay with lending money for houses in Rent to Buy programs.

Moreover, remember, there are other costs involved in buying a house that you will need to consider.

How do I apply?

If you are in England, you used to start by signing up with a Help to Buy agent who would check if you could join the program and put you on their list. However, now that Help to Buy agents are gone after the equity loan scheme ended, the government’s site advises you to talk to your local council or housing groups that might have Rent to Buy homes. 

You can look up local housing groups on a government webpage. This means if you are not in London, you will have to reach out to each housing group one by one, which could take more time.

In London, the London Living Rent scheme is still the same, and you start by searching for homes on the Homes for Londoners website.

In Wales, you can apply for Rent to Own through landlords that are part of the program. You can find a list of these landlords online.

In Northern Ireland, you can apply through the Co-Ownership website.

Scotland has its own set of government programs to help you buy a home.

Questions

What is Rent to Buy?

Rent to Buy is a government-backed program that allows you to rent a home at a subsidized rate (usually 80% of the market rent). You get the chance to test-drive the home before deciding to buy it later through Shared Ownership.

Am I eligible for Rent to Buy?

To qualify, you must:

  • Be part of a working household.
  • Not already own another property.
  • Have a good credit history.
  • Have a household income of £60,000 or less.

How does the math work?

Your Rent to Buy rent is usually 20% lower than the market rate. For example, if the market rent is £1,000 per month, your Rent to Buy rent would be £800 per month. You can use the extra £200 to save for your house deposit.

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