What are rent-to-own home schemes?

By Maria Gil · · 3 min read
Fact Checked
Advertiser disclosure
Two young women rolling out a carpet on their property they got through the tent to buy scheme

Rent-to-buy (RTB) scheme, also known as rent-to-own scheme, is a leasing agreement that gives renters the chance to buy a home at the end of a fixed rental period (usually three to five years). 

The idea of it is to help aspiring property owners enter the property market by removing the need to save for a traditional deposit and begin living in their dream home.

While this particular pathway to homeownership is not very common in Australia, these RTB schemes have grown in popularity in America.

How do rent-to-buy schemes work?

RTB schemes have two main parts to them: a standard rental agreement and an option to buy. That means that the home you live in is treated as a normal rental property until the end of the lease, where you can choose to buy the house at the price established at the start of the agreement.

Keep in mind, while you may be thinking about owning the property down the line, during the rental period you don’t own any part of the home. Also, the rental fee might be higher than your typical lease agreement, because you will be paying an option to buy fee.

The real owner of the property is the RTB business, who buys several properties and then offers it to aspiring homeowners as a RTB scheme.

The Rental Phase

Renting a property through a RTB scheme is like your typical lease agreement. The scheme typically requires you to pay a non-refundable deposit, which new home owners can pay using the First Home Owners Grant. This deposit will be deducted from the total price of the house when your lease ends. 

You pay rent like you normally do, with the option to buy fee. That fee may be 50-100% of the weekly rent, which will eventually add up to the additional deposit you’ll need to purchase the property. Be aware that you may lose the money paid towards these fees if you decide to not purchase the property.

Some schemes will also require you to cover the costs of building maintenance, council fees, stamp duty and insurance. That’s right, even if you don’t officially own the home you may find yourself paying for things like the official homeowner.

The Buy Phase

At the end of your rental contract, you’ll need to get a home loan from a lender. The cost of your home would have been established at the start of your leasing agreement. The deposit and option to buy fees will be deducted from the original price, and you’ll be expected to pay the rest.

Risks and Benefits of Rent-to-Buy

A major downside of RTB schemes is that you do not own the property at the start, but you are expected to cover the costs as if you did. This means that if you fail to meet a rental payment (which includes the opt-to-buy fee) you may run the risk of having the agreement terminated. You also run the risk of losing the property if you are unable to secure a home loan at the end of your lease period (along with all the extra payments you made towards it).

However, since the price of the home is secured at the start of the contract, if housing prices go up your home will stay the same price as in the agreement. This means you may get your home cheaper than the price it’s worth. But you run the risk of the reverse scenario happening as well. 

On the positive side, an RTB scheme can let a first time homeowner get their foot in the property market quicker: you rent the house you want to live in and get the chance to buy it down the line.

If you’re thinking of buying a new home, look through Mozo’s home loan guides to figure which path to property ownership is best for you.

Mozo may receive payment if you click the products below. We don’t compare the entire market, but you can compare more home loans here.
Last updated 18 September 2024 Important disclosures and comparison rate warning*

Home loan comparisons on Mozo

Promoted

  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Fixed Express Home Loan

    • Owner Occupier
    • Principal & Interest
    Interest rate
    5.99 % p.a.
    Fixed 2 years
    Comparison rate
    6.14 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Lock in a low 2 year fixed rate with the Mozo award winning Home Lender of the Year. Available for live-in borrowers with just a 10% deposit required. Free extra repayments (up to 20% in fixed period), free redraw and partial offset available. $10 monthly service fee. Aussie support centre. Fast approvals. Up to 6 free offset accounts (T&Cs apply).

  • 3 Year Special Fixed Home Loan

    • Owner Occupier
    • Principal & Interest
    Interest rate
    5.69 % p.a.
    Fixed 3 years
    Comparison rate
    6.16 % p.a.
    Initial monthly repayment
    $2,899
    Go to site

    This home loan is available for purchase or refinance, complete with 1, 2 or 3 year fixed rate options. Minimum 10% deposit required.

image of houses

Need help with refinancing?

You might have questions that need personal answers. We’ve teamed up with the mortgage brokers at Lendi to get you the answers you need, and a home loan deal you deserve.

Learn more

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.

Compare home loans