How does the Rent to Buy scheme work?

Last updated: 24 August 2020

How does Rent to Buy work?

The Rent to Buy scheme is a government program that was set up to help you own your first home, even if you can't afford a deposit at the moment.

It was introduced to provide cheap loans to help housing associations and social landlords build 10,000 new homes — mostly one or two bedroom flats — for young buyers.

Through the Rent to Buy scheme, UK Government ministers planned to provide house builders with £400 million between January 2015 and 31 March 2017 (£200 million for London, a further £200 million for the rest of England).

These new properties were made available for first time buyers to rent at 80% of the market value for at least seven years; then the occupier gets first refusal on buying it.

The intention of the Rent to Buy scheme is that while paying 20% less in rent, you may be able to build up a deposit to buy the property or another one after the seven years is up. There is no obligation to buy the property if you decide not to.

Is the scheme still open?

Rent to Buy scheme properties are not available everywhere in the UK, but you can use it and similar schemes in some regions.

Find your local Help to Buy agent here to see if they offer Rent to Buy homes in your area.

How does the Rent to Buy scheme work for tenants?

Monthly rent for Rent to Buy properties, including service charges, was capped at 80% of the average market price for the area. This was to allow tenants to save for a deposit to buy the property or another one.

Eligibility for the Rent to Buy scheme

The scheme was available for households with an income below £80,000. It is available for first time buyers or people who previously owned a home but are unable to afford to buy one now.

Problems with shared ownership

Shared ownership can work as a great tool for first-time buyers to get on the property ladder, but the system is not faultless.

For example, if you fall behind on your rent you could face eviction from the property. You would therefore lose your deposit, throwing you into a worse financial position than you started from.

This makes shared ownership a potentially risky proposition if you are not in regular, permanent employment.

You may also encounter problems when it comes to resale, with limited demand for secondhand shared ownership (depending on your area).

Other ways to buy your first house

There are several schemes and specialist mortgages to help you buy your first home.

If you are struggling to save a deposit, here is how to get a mortgage with no deposit and get on the property ladder.

Help to buy mortgages allow you to borrow additional money to buy a new-build home with only a 5% deposit.

Specialist first time buyer mortgages can come with high LTVs, meaning you would only need a deposit of 5% or 10%.