Rent to Buy, Rent to Own, Lease Option Purchase..call it what you will.. is a very worthwhile consideration, particularly in the current market (assuming we're at or fairly close to the bottom now!).
The key is, for your part, it's an "option" so you don't ever have to buy it if you don't want to, whereas the landlord/seller is obligated to sell only to you, within the pre-agreed option period which is typically 3-5 years (but can be any length of time both parties agree to).
Because the property is being reserved exclusively for you (i.e. the owner can't sell to anyone else while you have an option on it) then you should expect to pay a premium for this priviledge (typically in the range of 3% to 5% of the agreed sale price).
From an ethical perspective, the goal is for you as the "tenant buyer" to be able to save enough for a mortgage deposit before the option period expires. Say the property is £100k market value, it could be that the tenant buyer is offered it at a price of £110k for 5 years. In that scenario, the target for you as a tenant buyer is to have maybe £11k saved within the next 5 years (or you may even have the money already but prefer not to commit to a mortgage at the present time).
If in 5 years time the property is worth say £120k then you can exercise your option to buy or even sell that option to someone else to buy it (if it's included in the terms). If on the other hand it was still only worth £100k, then you would simply allow your option to expire and either hand the keys back or possibly continue renting.
In that worse-case scenario where you walk away, you might have paid say £3,000 option fee up front so yes you'd be that much out of pocket. However if the market moves in your favour then you're quids in and it's the landlord who loses any equity gain to you. What you need to consider is that if you commit to buy a house today then that's it, you're stuck with it come rain or shine and if you need to get rid at any time (relationship breakdown, loss of employment, market going wrong way etc etc) then by the time the lenders redemptions and agents fees have been paid then you'll be wishing it was only £3,000 you'd lost!!!
It may be more appropriate to call it "Try before you buy" as that's really what you're doing. A good analogy is a car lease purchase arrangement where instead of paying the retail price for a new car, you just pay a small deposit and agree to pay monthly installments for say 3 years so you can drive the car around. Then after 3 years you can either buy the car outright (price taking into account what you've already paid) - or else just hand the keys back and walk away.
I's not too dissimilar with a house except you might hope the value didn't depreciate as much as with a car!!!
So..time for constructive opinion.
1. Consider that nothing is set in stone at the outset. Options are great because they can be as flexible (or as inflexible) as the parties agree. You need to negotiate the terms hard. If landlord offers 3 year term you say you want 6 and hope you settle on 5 (for example).
2. Do your own homework with market value and rental amounts in the locality. Your aim is to secure an option price either at or as close to market value as possible.
3. Ask for a % of rental payments to be credited against the purchase price. For example if rent is £500pm then over a 3 year option cycle that would be £18000. Many seller/landlords will credit 50% or more of this against purchase price e.g.you have say £9000 less to pay if you do exercise the option.
4. You wont get all these things unless your landlord has no sense at all..so imagine the option period in years, versus the price you will eventually have to pay, versus as much rent rebate as you can get, something will suit you more than something else so go for that. Long as possible in years for current market value should be your aim. The more rental credit he rebates you the higher he'll want to set the buy price.
5. Assuming it will be a leasehold flat make sure you know how long the lease is before you do anything.
Good luck, let us know how you get on!
