How Rent to buy works

If you have not got enough money saved for a deposit on a house. Or for some reason you cannot get a mortgage at the moment. Using a rent to buy opportunity could be for you.

The way it works is the tenant buyer agrees a price with the landlord to buy the property for. In this example we will say that price is £220,000 for a 3 bedroom, 2 bathroom house. Instead of having to find £22,000, which would be the normal 10% deposit required for a mortgage, the tenant buyer only needs to find 3% which is roughly £7,000.

The tenant buyer then takes on the full responsibility of the house. Which is good because they can decorate and update it as much as they like. They continue to pay the landlord the market rate of rent for an agreed term of normally 5 ,7 or 10 years. They pay the landlord an additional monthly 'top up' fee. This 'top up' pays the remaining £15,000 that the tenant buyer needs as a deposit for their mortgage. For a 5 year term that would be £250 per month. For 7 years that would be £178 per month. For 10 years that would be £125 per month.

When the 'term' of the contract has finished the tenant buyer gets a mortgage and becomes the owner of the property. They also will benefit from the increase in what the property is worth. In 5 years time that property will be worth at least £250,000 and in 10 years it will be worth at least £300,000. But they will only pay the price that was agreed at the beginning of the plan, which in this example was £220,000.

So it is a very effective way for someone to get out of the renting trap and become a home owner.