What Is Rent to Buy?

Once upon a time, no one could afford a home: people rented into their forties, paying huge percentages of their income just trying to find a house that was vaguely liveable. But then they invented shared ownership schemes and the millennial generation was saved!

Well, not exactly. But rent-to-buy homes are definitely a step in the right direction in terms of getting people on the property ladder and out of a volatile and depressing rent market.

Here we explain what rent to buy is, sharing how it could be your hot ticket to homeownership. We’ll give you some great links to local projects at the bottom, too.

Rent to buy explained

Rent to buy is fairly new, so people haven’t really agreed what to call it. It is also known as shared ownership or even rent to own.

The basic concept is that instead of buying a house in the usual fashion (i.e. by putting down a deposit and taking out a regular mortgage), you buy a share of a home that is owned by a housing association. The share is usually between 25% and 75%. You then pay rent on the portion that you don’t earn.Let’s look at a simplified example. Imagine a home that costs £300,000 and has a monthly rental price of £1200. If you buy 50% under a shared ownership scheme you would pay £150,000 (probably with a mortgage/savings combination). You would then pay 50% of the rental price: i.e. £600 per month.

Who can use shared ownership schemes?

You can buy through shared ownership if:

• You are renting a council home or a property owned by a housing association
• You are not on the property ladder
• Your annual household income (i.e. the earnings of all the people you live with) is less than £61,000 and you live outside of London
• Your annual household income is less than £71,000 and you are buying a 1 or 2 bedroom property, or less than £85,000 for a 3-or-more bedroom property.

All details on eligibility can found here.

Can you sell your share ownership home?

Yes! The idea is that it helps you get on the ladder. You can sell your stake in the property, but remember that, just like with regular homeownership, the value of the home can go up and down, and if you sell, what you get will be a proportion of that value.It is important to note that when selling your ownership of a rent-to-buy property, the housing association that you bought it from has the right to first refusal. That means that they are entitled to buy it back from you at the market price if they want to. They have this right for up to 21 years after your purchase.

If you only own a share of your home (i.e. not 100% of it), then the association has the right to find a buyer when you are looking to sell. This helps others get the same help you had, though may slow down your sale of the house.

Details of shared ownership

An important aspect of the scheme is that, compared to renting, by owning part of the home you reduce the amount of money you give to landlords every week. This means you’ll have more money left to save up.

If you save up enough money to buy more of your property, then you can do this in a graduated way. This is called ‘staircasing’, and it lets you initially buy only 25% of the rent-to-buy home, but then build up to 100% ownership over time.

Not all lenders will give you a share ownership mortgage. This is because banks are used to being the owning party when you take out a mortgage, whereas under shared ownership, the housing association still owns a large portion of the property. Santander, Halifax and Nationwide all offer shared ownership mortgages.

Info

Shared ownership is just one of several government schemes to help first-time buyers. Click the link to find Help to Buy schemes in your area. For Londoners looking for housing associations near them, g15 is a great place to start.Until you’ve saved up enough to secure a shared ownership mortgage, EasyRoommate’s flatshare search can help you find the cheapest spare rooms in your area. Browse thousands of spare room and house share listings today!