Rent to buy
A rent-to-buy scheme is the purchase of a property in instalments.
You don't legally own the property until settlement which only happens once all of the instalments are paid.
Rent to buy schemes in South Australia
Only the South Australian Housing Authority (SAHA) is legally able to offer rent-to-buy terms for residential housing. Currently there are no rent-to-buy programs available through SAHA.
If you are looking at an arrangement with someone other than SAHA, it is likely that the contract is not legally binding in South Australia.
In most circumstances, rent-to-buy schemes are not legal in SA because:
- they can lock a person into an inflated purchase price
- there is a risk of losing your payments if you cannot get finance when needed or can no longer afford the rental payments
- there is a risk of losing your payments if the seller has financial problems and the property sold by the bank.
How rent-to-buy schemes work
Rent-to-buy schemes can seem attractive to low- and moderate-income earners as they are generally aimed at people unable to get finance approval from most lending institutions.
Rent-to-buy schemes can also be called wrapping or a lease-option schemes.
A rent-to-buy scheme usually has two phases:
The 'rent' phase
You have a contract with the seller, such as a lease, to live in the property for a period of time.
Part of your rental payment goes toward:
- accruing 'equity'
- paying other expenses like council and water rates
During the 'rent' phase, you do not own or have any legal right in the title to the property.
The 'purchase' phase
At the end of your rental contract, the extra 'equity' accrued during the rental phase may be applied towards the purchase price.
Usually, you'd get a bank loan to buy the home. On settlement, the title of the property is transferred to your name and you become the legal property owner.
Before entering an agreement
If you are thinking of entering a rent-to-buy scheme, you should seek independent legal and financial advice before signing any contract to make sure you understand all the implications and risks.
If you have already signed a rent-to-buy contract and run into difficulties, seek legal advice - you may be able to recover some or all the payments you have already made.
Remember - the information on this page is not legal advice.
Other financing options
If you are on a low or moderate income you may be eligible for a home loan from HomeStart Finance.
If you have any concerns or questions about a rent-to-buy scheme in South Australia contact Consumer and Business Services.