An increasing number of companies are tempting first-time buyers by offering rent to buy schemes.  A rent to buy scheme lets a potential buyer rent out a property with the option to purchase at a set price at some point in the future.  On the face of it this sounds like a golden opportunity for struggling first-time buyers to get a toehold in the market, but can it really be the best of both worlds?

The way it works is as follows: the potential homeowner puts down a deposit of around 2-5% of the property value, which will go towards the purchase if that option is taken up at a later date.  In return the first-timer gets a lease option, which gives the option of buying for a fixed price at an agreed date in the future & typically after three to five years.  Although rent must be paid until this purchase date, there is normally an option of over payment during this period (normally referred to as additional option consideration payments), which will go towards the cost of purchase.

At this point it must be noted that the deposit on rent to buy is non-refundable if the purchase option of the lease agreement is not exercised.  Bearing in mind that the average price of a house is currently around the £160,000 mark, the potential buyer would have to be very confident that they were going to buy at the specified date, as the loss would be about £4,000.  Although it has to be said that most rent to buy properties are likely to be new-build flats, which, depending on where in the country the property is, should be slightly cheaper than a house.
In summary, the benefits of this scheme include:

• No initial mortgage requirement
• A definitive option of home ownership after an agreed period
• Low scheme entry cost (typically 2-5% deposit)
• Potential value for money if the market rises
• Flexibility to opt out

However, the pitfalls must also be considered:

• 3-5 years of dead rental money
• Starter deposit is non-refundable
• Buyer may well pay over the odds if the market falls
• The arrangement is unregulated (so there is currently no course of redress through the Financial Services Authority or Financial Ombudsman)
• Landlord/tenant responsibilities for maintenance will vary according to scheme supplier

If you want to know more about the scheme there is unbiased advice on the direct.gov.uk website.