Rent to buy, or rent to own, schemes are not very common in Australia. Here's how they typically work:
Historically, rent to own schemes have been risky for renters. There are limited buyer protections, and renters can enter a contract with no guarantee they'll be able to purchase the home at the end.
A 2016 study by the Consumer Action Law Centre couldn't identify a single successful case of a rent to buy scheme. According to this report, risks of rent to buy schemes for buyers include:
Considering the risks, buying a home using a home loan may be a better alternative for a buyer who can afford it. A rent to buy agreement may be best suited for people who don't qualify for home loans.
In 2019 the Victorian government introduced a law to prohibit some of the problems with predatory rent to buy contracts. This law was introduced to protect buyers in various circumstances.
According to Consumer Affairs Victoria the rule changes prohibit certain 'terms contracts' and rent to buy arrangements, with significant fines and potential jail time for vendors and third-party intermediaries to act as a strong deterrent.
Assemble Communities offers rent to buy units in several developments in Melbourne and Ballarat. This is not quite a rent to own agreement (in line with Victorian law) but it is very similar.
Following Assemble Communities' version of rent to buy, you agree on the rental price and purchase price upfront and then sign a lease. You can rent the home for 5 years before purchasing it.
Rental increases are set at 3% annually, and the property price growth is fixed at 3% annually.
Renters are not obligated to purchase the home when the time comes, but you can sign a contract of sale that gives you the option to buy.
Unlike most rent to buy schemes, none of your rental payments go towards owning the property. So you're essentially renting a home with fixed rental increases and the option to purchase later at a fixed price.
The main thing to watch out for then is the rental price. You want to check that you're paying fair market rent. If that's the case, you're not running the risk of overpaying in rent and ending up with nothing to show for it.
PublicSquare offers rent-to-own options in NSW and QLD. When you sign a contract on a PublicSquare property you:
As with any rent to own scheme, it's important to make sure you're not paying more than fair market rent (before considering the extra contributions). And there's no guarantee you'll get approved for a mortgage at the end of the rental period.
While the option to sell the property and recover your extra contributions gives you some peace of mind, you still lose out on the 1.1% matchmaking fee. This is a substantial fee.
Rent to buy schemes provide a way for Australians to buy a home even if they can't obtain a regular home loan, whether that be due to income, bad credit or the hurdles of saving a deposit. Generally there are ways around this through different loan types. Look below to see what loans might suit different types of borrowers.
When looking at rent to buy schemes, it's very important to get legal advice and check the details of the contract thoroughly. Here are some steps you can take to reduce your risks:
| Response | WA | VIC | SA | QLD | NSW |
|---|---|---|---|---|---|
| Yes | 9.09% | 8.25% | 5.38% | 5.99% | 9.17% |
| No | 4.96% | 6.27% | 2.15% | 5.53% | 6.42% |
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Looking at rent to buy with public square but scared to make the step any comment
Hi My-le,
Rent-to-buy schemes can be helpful solutions for a lot of people but there are still risks and it really depends on individual circumstances as to whether it’s the right option.
When looking at rent-to-buy schemes, it’s very important to get legal advice and check the details of the contract thoroughly. You can also seek advice from a solicitor or conveyancer.
Thanks,
Rebecca
Hello,
I’m afraid we can’t give you any specific guidance about a decision here. You should definitely have a conveyancer check any contract before you sign it (if you go ahead with this company).
I hope this helps,
Richard