A Look Into The Rent To Buy Scheme of the Affordable Homes Programme

rent to buy scheme, affordable homes programme, first time homebuyers, low cost home loans

There are new schemes under the £23 billion Affordable Homes Programme available between 2015 and 2018 that aim to help people buy their first homes. One option I found particularly interesting is the rent-to-buy scheme being offered to first homebuyers.

Not too long ago, “rent-to-buy” was heard more often from property investing experts that gave presentations in PIN meetings and other bootcamp type investment seminars. Perhaps you’ve come across the names Simon Zutshi, Dave Lee, Reena Malra, and Rick Otton who all have taught flexible payment strategies when buying houses.

Now, however, even government programmes are catching up with the idea of flexible payment terms.

The Rent-to-Buy Scheme offers people flexibility to rent property first, with the option to buy the property later on. Under this system, the initial rent paid acts like the deposit, should the tenant move ahead with the purchase of the property.

This flexibility becomes attractive to homebuyers who find it difficult to save for a deposit required in a home loan. Instead of having to pay all the money now, the rent-to-buy scheme offers them a chance to pay the deposit in increments over time.

Aside from providing flexibility to first time homebuyers, the Rent To Buy Scheme under the Affordable Homes Programme also aims to increase housing supply.

Communities Secretary Eric Pickles recently started a Rent to Buy scheme that provides £400 million to housing associations in the form of affordable loans. Between 2015 and 2018, the initiative hopes to build up to 10,000 new apartment homes that landlords will rent to tenants at discounted rates for at least seven years. The idea of the discounted rent is that it gives tenants the ability to save money to pay a deposit on a new home in the future.

Housing associations have up to 16 years to repay their low-cost loans, and they are not allowed to increase the rent or sell at market rate until the loan is paid in full. When the below market rental period has ended, tenants are given the first chance at buying the property if they want it, or they can move out to buy a home someplace else, or choose to rent again in the location of their choice.

If the property is purchased by the tenant, the Housing Association will have the option to use any returns on their investment to build more homes in the area under a similar arrangement (thereby increasing the housing supply, which the government hopes can help reduce house prices).

Alternatively, if the tenant chooses to move on and purchase a house in a different area, the housing association will be able to rent out the property to another tenant.

If you are a first-homebuyer and you are interested in this rent-to-buy scheme, you may visit https://www.gov.uk/government/news/new-rent-to-buy-scheme-to-help-young-people-save-and-move-up-housing-ladder for more info.

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