Property Buying Guide
Rent to Buy or Lease Option
If you are thinking of shared ownership as rent to buy, then please head for our shared ownership section.
Back to Lease Option or Rernt to Buy...It's not just social housing tenants who can access right to buy – you can too, by taking out a lease option on a property of your choice. In some schemes you don't even have to take out a lease option - schemes vary.
Based on a US model, a lease option, option to buy or rent to buy scheme could provide the perfect hybrid between renting and buying your first home.This is also sometimes known as 'Part-Buy-Part-Rent'.
Companies offering this service allow you to either choose your own property or choose one from a portfolio of theirs - it depends on what sort of lease option scheme or right to buy scheme they are offering. You can rent the property from them – typically a new-build flat – and have the right to buy the property yourself within a three-year period. With some schemes you don't even need to pay for the option. To be considered you will need to know how much you can borrow, so take mortgage advice at the outset.
The Government also offers a similar scheme called Rent to HomeBuy. Under this scheme, first time buyers in England with a household income of £60,000 or less will be able to rent at 80% of the market rate in order to help save for a deposit. After two or three years, they would then have the option to buy 25% or more of the property. To find out if Rent to HomeBuy is operating in your area, contact your HomeBuy Agent. This scheme allows you to see if you like the property and the location. Your rent can go towarrds the deposit.
Typically, the main advantage of rent to buy is rather than playing a game of ‘savings catch-up' whereby you can't save as fast as house prices rise, the price of the property will be fixed from the day you move in as a tenant. And, as the property will be yours one day, any time effort and money you put into its décor will not be wasted.
Of course this opportunity will cost you somewhere along the line. If you sign the tenancy agreement there may be an ‘option fee' of around two per cent of the current property value. However, this may be lower than the market value as they buy properties in bulk. This option fee secures your ‘irrevocable right to buy' within the three years but it doesn't tie you into doing so. If you don't, it is possible to re-enter into the three-year agreement. Details may change depending on which of the rent to buy schemes or lease to buy schemes you are researching.
Before you can embark on lease option of rent to buy you will need to establish what sort of rent to buy mortgage you could afford, so speak with a mortgage advisor at the outset.
The rent you pay while waiting to buy may also be priced at a premium of around 10 per cent. However, if you have not managed to save for a deposit by this time, you should have one by default. This is because the mortgage you need to buy the property should be considerably less than its value – providing of course that property prices have continued to rise.
Companies operating in this field will need to know how much you will be able to afford when you come to buy the property/exercise your option so it's worth contacting a mortgage advisor about a rent to buy mortgage before you discuss your property needs with them.
Most useful and most popular pages on this site:
Shared Equity l Look for your First Property l Seek First Time Buyer Mortgage Advice l See our Best First Mortgages Comparison Table l Find out about First Time Buyer Mortgages l Find out How to Buy a House l Learn all about The First Time Buyer Mortgage l Shared Ownership