The prospect of buying a house can sometimes seem impossible. Particularly if you’re young, earn an average income and live in a city like London, where house prices continue to skyrocket.
In fact, average salaries are struggling to keep up with the UK’s rising house prices in general. A recent study from the Office of National Statistics stated that average house prices in 2021 were 65 times higher than property prices in 1970. Meanwhile, average weekly wages were only 35.8 times higher.
Thankfully, there are solutions in place. A rent-to-own contract can offer the perfect stepping stone to individuals struggling to join the property market. And schemes by Adjoin Homes are specifically targeted towards people who can afford to rent where they like but are unable to buy in that same area.
Here, we’ll talk through the pros and cons of rent-to-own contracts to help you decide why they’re right for you. We’ll also explain how Adjoin Homes provides the perfect solution to modern urbanites struggling to keep up with the UK’s soaring house prices.
What is Rent-to-Own?
A rent-to-own contract is an agreement that allows you to rent a home with the option to purchase the property at some point. Traditionally, the scheme is provided by housing associations and subsidised by the government to appeal to lower income tenants wanting to get on the property ladder.
Also known as “rent to buy”, “intermediate market rent” and “try before you buy”, rent-to-own tenants will need to qualify for the scheme. After which, they’ll be required to pay a deposit and the monthly rent payments. Depending on the agreement, a percentage of the rent is then paid back at the end of the tenancy agreement to help with the purchase price. You’ll then build up some property equity as you go.
Generally, rent-to-own contracts are either lease options or lease purchases. In brief:
Lease options: This type of rent-to-own contract gives you the option to buy a house without the obligation to do so. So if you come to the end of your agreement and you change your mind about purchasing the property, you are free to walk away.
Lease purchases: Lease purchases are less flexible and mean that you must purchase the home at the end of the agreement, regardless of your circumstances. If your financial situation changes, you may be in for a legal dispute.
The pros of Rent-to-Own
Like with anything, there are both pros and cons to rent-to-own contracts. On the plus side, they allow tenants to:
- Move into their dream home straight away: Rent-to-own contracts make living in your dream home a reality now. You won’t need to wait until you’ve saved enough money or improved your mortgage eligibility.
- More time to save: If you’re not ready to take the plunge on a house purchase, rent-to-own contracts buy you time—whether that’s to save more money for a down payment or get your financial ducks in a row.
- More equity: Rent-to-own contracts put your rental money to good use. Depending on the contract, payments may go towards your eventual purchase price or down payment. This means you’ll build up housing wealth while renting.
- More security: If you rent, your landlord can technically decide to sell the property at any moment. However, rent-to-own contracts take away that stress and leave you feeling more secure in your living space.
- No hassle of moving: If you decide to purchase your property at the end of your tenancy, you won’t have to deal with the costs and inconvenience of moving. You’ll already be living in your dream home.
The cons of Rent-to-Own
Rent-to-own agreements aren’t for everyone. Some of the few downsides to contacts like these include:
- Upfront fees: Depending on the agreement, upfront payments may be required. However, they can sometimes be applied to your down payment if you do eventually buy the home.
- Higher rents: If your contract states that your rent payments will contribute towards your down payment, your rent payments may be higher.
- No guarantees: Entering a rent-to-own agreement doesn’t guarantee homeownership, unfortunately. When the term is up, you’ll still need to qualify for the mortgage so your income and finances will need to be in good shape.
- Maintenance responsibility: Despite you not officially owning the home, some contracts state that you’re still responsible for any property maintenance, which can be costly.
- Limited choice: Traditional rent-to-own schemes tend to apply to houses of a specific value. If the house you’d like to buy is more expensive than the threshold, you likely won’t qualify.
How does Rent-to-Own affect credit scores?
Rent-to-own agreements generally shouldn’t impact your credit score. This is because rent-to-own payments aren’t usually reported to credit bureaus but they can be on request. However, all your payments must be paid on time for your credit score to go up. If you miss a payment or make it late, it will have an adverse effect.
In order to qualify for a rent-to-own agreement, your credit score will need to be in good shape. The standard isn’t quite as high as it would be if you were applying for a mortgage outright, but you’ll still need to prove that you can keep on top of your payments.
How adjoin differs from general rent-to-own schemes
Created by renters for renters, Adjoin Homes is a purely private scheme aimed at working professionals struggling to enter the property market. Even for those with relatively high salaries, it’s hard to keep up with the UK’s soaring house prices.
Most rent-to-own contracts in the UK are fixed for three or five years, but Adjoin Homes provide contracts for up to 12 years. We don’t apply fixed prices so there’s no need to try and predict whether you’re getting a good deal for the future. We apply market prices at the end of the agreement so both property investors and tenants “win” if house prices increase.
You also won’t necessarily have to pay higher rent payments. We offer flexible packages that let you decide whether you pay more or less. Any monthly payment will be paid to the property investors and will affect what you get at the end. And if you change your mind about buying the property at the end of the contract, no problem! You’re free to walk away with any proceeds.
If you dream of buying your home one day but aren’t quite ready to take the plunge, rent-to-own contracts may offer the perfect solution. There are pros and cons to rent-to-own contracts, but generally, they allow first-time buyers to enter the property market without huge savings. However, there are limitations involved to schemes offered by housing associations.
Adjoin Homes, however, provide choice and flexibility to modern urbanites who want to buy in a specific area but haven’t quite accumulated enough wealth. You’ll enjoy more time to save for your down payment while building up housing wealth as you go. If you decide to buy, you’ll qualify for the current market price and you won’t have the hassle of moving. But if you change your mind at the end of your agreement, you’re free to walk away.
And while you may have to pay an upfront fee, Adjoin Homes offers flexible payment plans that work for your circumstances. We offer the option to pay zero or little down payments so you won’t break the bank. Getting in your dream home now becomes possible.