Rent to Buy Scheme and Mortgages

In the UK, there have been various schemes introduced over time to help first time buyers get onto the property ladder. One such effort is the Rent to Buy scheme which helps buyers purchase a property through lower rent to help save a deposit.

If you are looking for help with buying a property, Rent to Buy may be ideal for you, and there are significant advantages attached to the scheme. There are (as always with any government scheme) also aspects of Rent to Buy you should be aware about before deciding it is right for you.

Let’s explore the Rent to Buy Scheme and how it works with mortgages.

What is the Rent to Buy Scheme?

The Rent to Buy scheme allows you to rent specified properties at a discounted value and the saving is then put towards a mortgage deposit.

Before we continue, and even ask “are rent to buy schemes good?” it is important to state this scheme is not widely available.

In Scotland there is no access to the Rent to Buy Scheme. In Wales, the scheme is now closed except for properties that have already been enrolled – which makes it extremely difficult to participate if you are a new renter. In London the scheme is not applicable because there are separate schemes that replace it.

Predominantly, this scheme is only really accessible for tenants in England (excluding London). Even still, the property you are renting will need to be enrolled in the scheme and it is not available for any rented property.

I Have a Rent to Buy Property – Now What?

If you are fortunate enough to find a Rent to Buy property, you will find the rent is lower than similar properties in the surrounding area.

Typically, your monthly rent will be up to 20% lower however there is variance in this percentage depending on where you are located.

As part of the Rent to Buy Scheme you will be tied into a 2-year tenancy agreement. The idea being you save your deposit within the two years.

If you fail to save your deposit in the 2-year period, it will be up to the landlord whether or not to extend your tenancy. Bearing in mind the incentive for a landlord is to have new scheme renters move in, this may not be possible.

Can I Get a Rent to Buy Mortgage?

Once the two years have elapsed and you have saved for your deposit, you will exit the scheme and apply for a mortgage in the standard way a first-time buyer would.

There is no special scheme savings account or mortgage product for Rent to Buy. Instead, it will be a standard mortgage application.

The purpose of the scheme is to allow you a bit of breathing room to save for a deposit if you are a tenant.

Are Rent to Buy Schemes a Bad Idea?

The scheme is poorly thought out in many respects and has attracted criticism, so it’s not unusual to find people asking; “are rent to buy schemes bad?”

First, 24 months of saving is unlikely to yield enough to use as a mortgage deposit, even on a mortgage with a 5% deposit.

Second, it is largely inaccessible to renters. When you apply, you have to select a property you wish to rent on the scheme. Once your application has been processed, the property needs to still be available, otherwise you start the process again.

Notwithstanding the problematic application process, as mentioned, the Rent to Buy Scheme is limited geographically. It is further limited by the amount of landlords willing to enlist in the scheme.

For example, of new houses built in the year 2022-2023 (for which we have the latest figures) only 4793 were registered as affordable rental properties. This figure is not limited to Rent to Buy as a portion is allocated to other affordable housing schemes.

With this in mind, scarcity makes it very difficult to get onto the Rent to Buy Scheme, and even when on it, you will likely not save a full mortgage deposit. Instead, it should be viewed as a way for those lucky enough to enroll to save a bit extra toward their mortgage deposit. For those people, the answer to “are rent to buy schemes good?” is a resounding yes.

Speak to a Specialist Mortgage Broker

Irrespective of whether you are using a government scheme to help you get onto the property ladder, it is a fantastic idea to discuss your goals with a mortgage broker. They’ll answer all your “what is rent to buy scheme” questions.

A mortgage broker will be able to point you in the right direction for applicable government schemes as well as find you a mortgage that works for your circumstances.

Mortgage deposits are difficult for most first time buyers and you should not feel overwhelmed. A mortgage broker will help you plan out your route to a mortgage and then take care of the application for you.

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Broker. Boon Brokers provides fee FREE mortgage advice.

Contact Boon Brokers to discuss Rent to Buy or your mortgage goals today