Struggling to get on the housing ladder? Find out how Rent to Buy mortgages can help with this comprehensive guide.
If owning a house is your ambition but you’re having trouble saving for a down payment, you might want to think about getting a rent-to-buy mortgage.
With rent to purchase, you can choose to buy a home after renting it for a predetermined amount of time at a discounted fee. Although this may seem enticing, there are a number of restrictions and things to think about before moving further.
We’ve included all the information you need to know in this thorough guide, including who qualifies, how the Rent to Buy program operates, and why it’s a good idea to speak with a broker first.
What is a Rent to Buy mortgage?
People who are having trouble climbing the housing ladder can make the shift from renting to purchasing with the aid of a rent-to-buy mortgage.
A program supported by the government is called rent to buy, which is also referred to as rent to save and rent to own in Wales. Depending on where you reside in the UK, it operates slightly differently.
In England, Scotland, and Northern Ireland, you may rent a new-build house for a discounted price of around 80% of the market rate, often for a period of six months to five years. There is no requirement for you to save the remaining 20% and utilize it as a down payment when you eventually decide to purchase the home.
In Wales, you can rent a home at market rate for up to five years before having the option to buy it after two years. If you do, you will receive a refund of 25% of the rent you have already paid plus a credit for 50% of any rise in the property’s value since you started renting it.
The government’s Shared Ownership program, which enables you to purchase a portion of the property while paying rent on the remaining portion, or a mortgage are also options for purchasing the property.
It’s vital to understand that if you decide to purchase the home, you will do so at the current market value rather than the price at which you first rented it.
Where is the scheme available?
In England, Scotland, and Northern Ireland, rent-to-buy options are available. However, availability varies from one local authority to another and is frequently limited. You could discover that you’re added to a long waiting list if there aren’t many Rent to Buy houses available in your region. If you leased or purchased on the open market, you would undoubtedly have more options.
Wales’ Rent to Own program is no longer open to participating landlords, and no new initiatives will get funding. However, some of the homes that will be made available under the program are still being constructed, so any new candidates who choose to apply could still be able to do so.
London Living Rent
For those who reside in the city, London Living Rent is the equivalent of Rent to Buy. In a similar way, you receive discounted rent on a rental property and are urged to save aside the balance for a deposit. Tenancies, however, must last a minimum of three years.
Where you reside in London will determine how much rent you pay, but on average, rent in the city is roughly £1,000, or about 75 percent of the national average.
First-time buyers and those who previously owned a home but are unable to purchase in the present market might employ rent to buy.
Your household, which might be made up of a single individual, a partner, or a friend, must make £60,000 or less annually.
Additionally, you must have a solid credit history.
It’s important to note that housing organizations provide Rent to Buy homes, and each association has its own eligibility requirements, so you should inquire with your local association to see whether you qualify for the program.
How to get a Rent to Buy mortgage
Housing organizations provide rent-to-buy, as was already indicated.
There are several application processes based on where you reside.
Mortgage rates if you use the scheme
Your mortgage’s interest rate will be the same as it would be if you hadn’t applied through Rent to Buy.
There are a few alternatives available to you if you want to purchase your Rent to Buy home. Either a conventional mortgage or the shared ownership program are options. With the latter, you borrow money to buy a portion of the property and then rent the rest from a council or housing organization.
Regardless of the path you choose, using the Rent to Buy program shouldn’t affect the interest rate you pay on your mortgage. Your lender will use their normal set of criteria, which may include elements like the size of your down payment and your credit history, to establish the rate.
Is the Rent to Buy scheme right for you?
If saving for a down payment is the primary thing standing between you and the housing ladder, it could be worthwhile to talk to a mortgage broker about rent to buy. You should also look into some of the alternatives in order to decide if it’s the greatest choice.
Below, we’ve compiled them for you.
Alternatives to consider
Rent to Buy is just one option for people struggling to get on the housing ladder.
There are a number of other options including…
Help to Buy Equity Loan
First Homes Scheme
Aimed at first-time buyers, the First Homes scheme offers newbuild homes at a 30%-50% discount to market price. It’s open to people of any profession but key workers are prioritised.
Right to Buy
Right to Buy enables eligible council tenants in England to buy their home at a discount.