Editor's note: This brief was summarised by The Property AI Newsroom from a report by Property118. Read the original article for full details.
Rent to Buy Model Now Largely Unworkable for Private Landlords
The Renters’ Rights Act 2025 has introduced significant changes that make traditional ‘rent to buy’ schemes largely unworkable for private landlords. The Act imposes new restrictions on tenancy terms and payment structures, affecting how these arrangements can be offered in the private rented sector.
Traditional ‘rent to buy’ models allowed tenants to build up a deposit while renting, with the option to purchase the property after a fixed term. These arrangements typically involved a fixed term assured shorthold tenancy, an upfront option fee, and monthly payments above market rent credited towards the eventual purchase. The fixed term provided certainty for landlords, and the option could be protected at the Land Registry.
However, under the Renters’ Rights Act 2025, all assured tenancies must now be periodic, and tenants can end the tenancy at any time with two months’ notice. Fixed term periods are no longer permitted, and attempting to offer one can result in civil penalties. The Act also restricts the collection of upfront payments and rent credits, making it unlawful to require or receive option deposits or monthly credits outside of standard rent payments. Any rent set above market value to fund credits is also vulnerable to challenge.
The Act does recognise ‘rent to buy’ arrangements for private registered providers of social housing under Ground 1B, but these are subject to strict conditions, including rent caps and minimum periods before a sale can be offered. These provisions do not apply to private landlords.
For letting agents and inventory clerks, these changes mean that traditional ‘rent to buy’ schemes are no longer a viable option for most private landlords. Any attempt to structure such arrangements must comply with the new legal requirements to avoid significant penalties.
Source: Property118