Despite experts claiming that the housing market is slowly showing signs of bouncing back, some sellers are still finding it hard to shift their properties whilst some potential buyers are still unable to find mortgages. And this is where the rent-to-own scheme comes in.

The rent-to-own scheme, sometimes also known as lease-option, works well for both parties. The buyer normally puts in around 5% of the purchase price of the house plus pays slightly over the odds for their rent. The standard amount of rent goes straight to the home owner, whilst the additional rent is used as a down-payment for the property.

This means that the home owner gets rent for their property plus buyers for the house in the long-term. The buyer saves up a deposit for their home, particularly useful if they are struggling to find a mortgage. Because a rent-to-buy property scheme is normally contracted for between 1 and 3 years, the buyers also get a chance to get a feel for the property and the local area.

The Rent-to-Buy Contract

Normally, the contract is written in for between 12 and 36 months, with renters often given the option to exercise their options after a 12 month period. If the renter decides to walk away from the property, they lose both their deposit and the ‘extra’ rent they have paid each month.

Rent-to-Buy Pitfalls

Naturally, there are potential pitfalls associated with this sort of contract.
Not meeting rental payments: If the buyer fails to meet all their rental payments over the course of the contract, they stand to lose all the money they have put towards the property.
Financing the purchase: If the buyer is unable to find a mortgage at the end of the contract and the home owner does not wish to renew the agreement, the buyer will probably stand to lose all the money they have invested in the property. If the buyer is struggling to find a mortgage now, there is no guarantee that the money put towards the property in up-front fees and rental payments will be enough to let them find a mortgage at the end of the contract term, particularly if the housing market continues to fall.
House Prices: Normally, the prices of the house will be negotiated at the start of the contract. If house prices fall or remain the same, the buyer may not want to buy the property at the end of the contract term. However if they walk away from the property, they lose all their money already invested so it becomes a toss-up between whether it is cheaper to buy the property at inflated cost, or to walk away from the deal.
Repossessions: If the home owner has their property repossessed before the end of the contract term, the renters may find they will not be able to reclaim the money that they have paid in up-front fees and extra rent, thus they may stand to lose all their investments.

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