What is rent to buy? Nationwide invests in fintech company Kettel Homes
ationwide has invested in Kettel Homes, a Rent to Buy start-up which helps first-time buyers who can’t access typical mortgages by saving part of their rent to build the deposit.
The new rent-to-own scheme means some tenants can save part of their rent to help build a deposit to buy, but it is not currently available in London.
One of the firms behind the idea is Nationwide Building Society, whose head of strategy and sustainability Claire Tracey says: “The fact is that many individuals who are struggling financially have to pay more for the same goods and services. More needs to be done to make things fairer for those with the least means. But these are not easy problems to solve and require a truly collaborative effort across sectors.
“By providing meaningful support alongside funding, we look to help transform the lives of those living in poverty by scaling long-term solutions to help tackle the challenges this presents.”
And Trevor Stunden, managing director and co-founder of Kettel Homes, adds: “We aim to change that by using a mixed-use model to give ambitious first-time buyers the structure they need to get their foot on the ladder. Our aim is to expand home ownership to people who otherwise could not access traditional home financing at this time. The long-term benefits of home ownership for both the individual and society are clear and provide stronger families and communities.”
But what is Rent to Buy? And who is it aimed at? Here is everything you need to know.
What is the Rent to Buy scheme?
Institutional property investors buy properties – usually detached houses bought for between £125,000 and £400,000 outside London – and then use their platform to manage the process.
Financial platform Kettel Homes allows tenants to choose the home they want to buy, then rent it back to them at market rates while they save the deposit and build their credit score.
By fixing rent, savings and future purchase price from the start, Kettel lays out what it calls “a roadmap for first-time buyers to achieve their goal of home ownership within 36 months, and ensure the price of the property does not increase over time. “
Those using the service are asked to save a 10 per cent deposit and will be given a standard repayment loan when they move from renting to owning. If the customer decides not to buy, they still get to keep their savings minus a relisting fee. The customer then has the option to stay on rent of the property.
Who is the Rent to Buy scheme for?
Rent to Buy targets those who are currently employed and have a plan to own the home within 3 years. If you can pay your rent but are currently unable to get a mortgage due to deposit or credit issues, Rent to Own could be the answer.
The big difference between traditional letting and Rent to Buy is that you choose a newly built home and the scheme owners buy it for you so that you rent it back.
The buyer then commits to a three-year plan with the aim of buying the home, either with a mortgage or with a joint ownership. The 3-year lease period allows time to resolve any employment issues, with the exception of a security deposit, and reduce debt, improving eligibility for either a mortgage or co-ownership.
Tenants can then buy their house at any time after the first year until the end of the third year.
Where is Rent to Buy available?
The concept has been launched in Birmingham, Coventry, Leicester and surrounding areas, with the first home purchases underway, and will be expanded to other cities across the Midlands and North over the next two years.
What are the advantages of renting to buy?
- The scheme gives you time to address your eligibility issues while you live in the house you want to make your home.
- It provides security and peace of mind, it removes the fear of “when will the landlord get the property back”.
- It will help you build a deposit for your mortgage.
- You choose the property in a place you want to be.
What are the disadvantages of Rent to Buy?
- Rent to Buy is a long-term commitment. If your plans or circumstances change during the Rent to Own period, you may not be able to purchase the property.
- With Rent to Buy, you will usually buy the property at its value when you actually buy it and not at its value when you start renting it. So if prices go up between now and when you buy your property, it could cost you more than you expected.
- Rent to buy may not necessarily be the best or cheapest route into home ownership, depending on your personal circumstances.
- Rent to Buy is not available on all properties or in all areas.
- If you buy a property as a rent to buy, it may not always be easy to sell if you want or need to compared to a property you buy outright. For example, if you buy on shared ownership.
