Rent to own: The first time buyers guide

Rent to own is an agreement that gives the tenant the right to purchase the home they're living in after a predetermined period - usually five years. These agreements are made to benefit the tenant by providing stable, affordable housing then supporting them as they purchase the property.

These schemes can be worthwhile if you’re struggling to save a deposit, or you keep having mortgage applications declined by lenders.

Rent to own schemes all have different terms and conditions, but they often have a few things in common:

• A five year occupation agreement: this gives you the right to live in the home for up to five years without worrying about the landlord evicting you. 

• A right to purchase: after the occupation agreement period ends you’ll have the right to purchase the home and won’t have to compete with other buyers. You don’t have to though - if you don’t want to or you can’t afford it you’re not required to buy the property. 

• Reduced rent: rent to buy houses often charge lower than market rent to make it easier for tenants to save a deposit. Some even cap rent at 30% of your gross income. 

• Support when buying: Most rent to own NZ schemes help buyers get a deposit together and make it easier to get a mortgage. 

• Help with finances: this includes help creating a budget and financial plans and support while they work towards goals. 

These rent to own programs often provide different types of support - it’s a great idea to check what’s on offer before agreeing to anything to make sure it’ll benefit you. 

Most rent to buy schemes in NZ are designed to help people into home ownership who otherwise might not be able to achieve it. To achieve this they have eligibility requirements that limit the amount of income and debt you can have. 

For example, to be eligible for the Housing Foundation scheme you must: 

• Be a New Zealand citizen or permanent resident. 

• Not own a home or have purchased a property before. 

• Have at least one person in the household in full time employment. 

• Have manageable debt that can be paid off in five years. 

• Have an income below a certain threshold, usually between $65,000 and $95,000 per year before tax. 

Some rent to own schemes, such as Ka Uruora, even require you to complete a financial education course before signing up. 

Many rent to buy schemes put a portion of rent payments aside to go towards the tenants house deposit at the end of the five year period. If this is the case, it’s good to know how much of your rent is going towards a deposit and what happens to that money if you decide not to buy. Many schemes also charge one-off and regular fees that may come out of your rent - so it’s worth knowing how much they are. 

If house prices and rent prices go down does your rent decrease? And how does that affect the purchase price of the property and support you’re receiving from the provider? .

In some cases the provider will offer shared ownership on top of a rent to own scheme. In other words, if you don't have enough to purchase the full property they’ll finance the rest and give you the chance to buy that portion of the property back from them over time. In most cases the buyer will need to be able to finance at least 60% of the property’s purchase price. 

If you can’t arrange finance at the end of the five year period you may not be able to buy the home and in some rare cases you may even lose the deposit contributions you paid to your provider. To avoid this it’s best to get an indication on how much you can borrow before you enter into the agreement and make sure you follow your savings goals so that you have enough deposit. 

Find out what happens if you decide to exit the scheme without buying. What will happen to any deposit contributions you’ve made throughout your tenancy?

The Housing Foundation

New Zealand’s largest provider of rent to own properties. A charitable housing trust that started in 2007 and has since helped over 1,000 families into high quality, affordable homes in collaboration with iwi and local government. 

Rent to own homes available in: Bay of Plenty, Auckland.

Tamaki

A government and Auckland Council-owned entity that provides both rent to own and shared ownership programs to help those who live in the Auckland area stay here - especially Māori and Pasifika. 

Rent to own homes available in: Auckland.