The Government’s Rent to Buy Scheme

It is no secret that property prices general rise over time and that taking that first step onto the property ladder is a challenge for most. For some time now, the Government has been utilising a number of different schemes all with the aim of helping people take that first step onto the property ladder. With the regular housing shortage especially in England and Wales, compounded by the fact that property prices are becoming ever so unaffordable, The Government’s Rent to Buy Scheme could be seen as a welcome break to most.

With significant changes taking place with what government help is available to property buyers, such as the Help to Buy Equity Scheme which has been operating since 2013 finally coming to an end, this article aims at looking at the Government’s Rent to Buy Scheme in detail.

The background for the Government’s Rent to Buy Scheme

Historically, focus has always been concentrated on getting people on the property ladder. This is what gave rise to the Help to Buy Equity Scheme, Help to Buy Savings Accounts such as Help to Buy ISA, Lifetime ISA (or LISA) so on and so forth. For people who were not quite able to purchase a property even using these assistive schemes, and had to continue renting, there remained very few (if any) alternatives available to them in the immediate future. This was not helped by increasing rent prices and payments and a rising demand in rental property, which further pushed up prices, all of which resulted ultimately in individuals finding themselves increasingly unable to buy a property in the long run as a result of having no savings due to high rents!

The Rent to Buy Scheme therefore has been introduced in an attempt to bridge this gap. Under the scheme, you can rent a qualifying property for between 6 months and 5 years, with a discount of 20% on the market rent price. The aim is to then allow the tenant (you) to save that 20% each month, eventually allowing you to purchase at least a share of the property. Typically, the share of the property purchased, starts at 25% with further incremental staircasing proportions by 5%. Therefore, you could initially staircase the minimum 25% followed by 15% the next time. The Rent to Buy Scheme means you will be purchasing the property under a Shared Ownership type scheme. By the end of the 5 year qualifying period, tenants will have one of two options. The first is to buy at least a proportion of the property by why of the shared ownership scheme, or secondly, and less favourably to vacate the property.

There is an additional benefit available for those qualifying for the scheme in addition to the reduced rent paid during the qualifying period and greater saving potential. When you apply to purchase the house, you will receive 25% of any rent paid and 50% of any value increase of the property since the time you moved in. This money can either be used towards the purchase or kept if you have the funds available for the purchase either by way of savings or a mortgage. There is a downside to this as you will be buying for the value the property is at the time of purchase and not when you started to rent, which may be higher especially if you have rented for the maximum 5 year period.

Other disadvantages are that 5 years is a long term commitment especially if your personal circumstances change during this time. In addition, due to the shared ownership aspect, it can end up costing you more in the long run to purchase the home, especially as most mortgage rates are standard as if you were buying on the open market. In some cases, there are limitations on your ability to sell the property especially if you do not own 100% at the time of sale.

Different Schemes Available

Similar schemes are also available under different Housing Associations known by different names, such as:

• Rent Save Buy
• Rent to Own
• Try before you Buy
• Immediate Market Rent
• Part Buy Part Rent

In Wales, the scheme was known as Rent to Own, however it is now closed. It is possible that there are schemes that were set up earlier that still have properties available.

In London, the scheme is called London Living Rent. This scheme differs from the rest of the country in that the minimum period of tenancy to qualify for the scheme is 3 years. At the time of writing, the average rent payable by tenants as part of the London Living Rent scheme is around £1000, which is considerably lower than the average private rental values in the capital.

Eligibility for Rent to Buy

As with most schemes similar to this, there are some strict criteria an individual must meet before being eligible for the Rent to Buy Scheme. The total household income should not exceed £60,000 per year, with a higher amount of £64,300 in London. What constitutes a household is more loosely defined and is considered an individual, family and friend. The scheme is not limited to first time buyers, as it also includes those who are not able to afford to purchase a property on the open market. This means that anyone qualifying must not currently be a homeowner. The only exception to this is if an individual has been ordered to remain named on the deeds of a property for the sake of their children by a formal court order.

An individual must also have a good credit history. The scheme is only open to British citizens or those from the EU/EEA. You must be employed either in work or self-employed. You must demonstrate affordability for the rent as part of the process. The home must be an eligible home with a participating landlord.

Some individual housing associations have additional eligibility criteria, such as giving priority to existing tenants of theirs, council tenants or local key workers such as nurses.

Most Rent to Buy properties are on new build estates, however some existing properties may be available where tenants have made the decision not to buy a property at the end of the qualifying period.

Application Process for Rent to Buy

The process varies depending on where in the country you are. Some recommended steps are:

1) Register with your local help to buy agent
2) If in Wales, you can find your local participating landlord via the following website https://www.gov.wales/rent-own-wales-participating-landlords?_ga=2.1621105.1915813905.1673000531-1581403785.1673000530
3) You can also approach local providers directly, including your local Housing Association. You are highly likely to require the consent of Help to Buy before you can proceed with them

Where can I find eligible properties in my area?

Depending on where in the country you live, you can use the following links to see what is available. Please note not all properties are available in all areas. It really does depend on what your specific location has to offer.

North – Search for a Rent to Buy home in the north.
Midlands –Search for a Rent to Buy home in the Midlands.
South (excluding London) – Search for a Rent to Buy home in the south.
London – Search for a London Living Rent property