Glossary · UK
What is Rent to Own Scheme?
An arrangement where a tenant pays rent with an option or right to purchase the property at a pre-agreed price after a specified period.
Full Definition
A rent-to-own scheme (also called rent-to-buy, lease-option, or lease-purchase) is a contractual arrangement in which a tenant rents a property for an agreed period and has the option (or in some cases the obligation) to purchase it at a pre-agreed price at the end of that period, or at some point during the tenancy. Arrangements vary considerably: some involve a separate option agreement, where the tenant pays an upfront option fee (often 1-5% of the agreed purchase price) to secure the right to buy; others credit a portion of monthly rent payments towards the eventual deposit or purchase price. Rent-to-own schemes can appeal to prospective buyers who do not yet have a large enough deposit to obtain a mortgage but wish to lock in a purchase price and effectively "save while they rent." However, they carry significant risks for tenants: if house prices fall, the tenant is locked into an above-market purchase price; if the landlord has a mortgage on the property, the lender may not permit the arrangement; and the tenant may lose the option fee if they cannot complete the purchase. The government's Help to Buy: Rent to Own scheme (historically available in England) has operated in various forms; similar schemes exist in Wales. Consumers considering a rent-to-own arrangement should obtain independent legal advice before signing any contracts.