What is Rent to Buy? Nationwide invests in fintech company Kettel Homes

·4-min read
(Paul Faith/PA) (PA Archive)
(Paul Faith/PA) (PA Archive)

Nationwide has invested in Kettel Homes, a Rent to Buy startup helping first-time buyers unable to access typical mortgages by saving part of their rent to build the deposit.

The new rent-to-own scheme means some tenants can save a slice of their rent to help build a deposit to buy, however, it’s not currently available in London.

One of the firms behind the idea is the Nationwide Building Society, whose chief strategy and sustainability officer Claire Tracey says: “The fact is 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 who have the least means. But these are not easy issues to solve and require a truly collaborative, cross-sector effort.

“Through providing meaningful support alongside funding, we are looking to help transform the lives of those living in poverty through scaling long-term solutions to help tackle the challenges this presents.”

And Trevor Stunden, chief executive and co-founder of Kettel Homes, adds: “We are setting out to change that by using a blended model to help give aspirational first-time buyers the structure they need to get their foot on the ladder.

“Our goal is to expand homeownership to people who couldn’t otherwise get access to traditional home financing at the moment. The long-term benefits of homeownership for both the individual and society are clear and makes for stronger families and communities.”

But what is Rent to Buy? And who’s it aimed at? Here’s everything you need to know.

What is the Rent to Buy scheme?

Institutional property investors purchase properties — typically single-family homes bought for between £125,000 and £400,000 outside of London — and then uses its platform to manage the process.

Financial platform Kettel Homes allows tenants to choose the home they want to buy, then rents it back to them at market rates while they save their deposit and build their credit score.

By fixing their rent, savings and future purchase price from the beginning, Kettel sets out what it calls “a roadmap for first-time buyers to achieve their goal of homeownership within 36 months, ensuring 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 mortgage as they transition from renting to owning.

If the customer decides not to purchase, they still get to keep their savings minus a re-listing fee. The customer then has the option stay on renting the property.

Who is the Rent to Buy scheme for?

Rent to Buy is aimed at those who are currently employed and have a plan to own their home within three years. If you can pay your rent, but can’t currently get a mortgage due to deposit or credit issues, then Rent to Own could be the answer.

The big difference between traditional renting and Rent to Buy is that you choose a new build 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 to buy the home, either with a mortgage or with Co-Own. The 3-year tenancy gives time to address any employment issues, save for a deposit, and reduce debt improving eligibility for either a mortgage or Co-Own.

Renters can then buy their house at any time after the first year up to 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 is expanding to other cities across the Midlands and North over the next two years.

What benefits are there to Rent to Buy?

  • The scheme allows you the time to address your eligibility issues while living in the house that you want to make your home.

  • It offers security and peace of mind, it removes the fear of “when is the landlord going to want his property back”.

  • It will help you to build a deposit for your mortgage.

  • You choose the property in a location that you want to be in.

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 be unable to buy 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 begin 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 might not necessarily be the best or cheapest way into homeownership depending on your personal circumstances.

  • Rent to Buy isn’t available on every property nor in every area.

  • If you buy a property as a rent to buy it may not always be easy to sell it if you want or need to compared to a property which you buy outright. If, for example, you buy on a shared ownership basis.

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