Rent to own scheme puts home seekers into properties without deposit, while rent gets turned to equity

Home seekers will be able to rent their way to the Aussie dream with a new scheme designed to get aspiring buyers a home sooner, without a deposit. Here’s how it works:

Zaheer Jappie and Michelle Saunders, with kids Laila and Yaqub, will soon move into a home they will rent to own. Picture: Jonathan Ng

Home seekers will be able to rent their way to the Aussie dream with a new scheme designed to get aspiring buyers into the property market quicker and without a deposit.

The concept known as OwnHome turns the idea of rent being “dead money” on its head with a rent-to-own model that allows customers to buy the homes they rent within a few years.

And instead of rent going entirely into a landlord’s pocket, part of the monthly payments are turned into equity, meaning they contribute directly to the ownership of that home.

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OwnHome co-founder Tim Harley said the rent-to-own model was developed as a response to skyrocketing property prices and the exorbitant amounts new buyers needed to save for deposits.

“Many people can service high loans but it’s the deposit that’s the real hurdle,” Mr Harley said. “If you don’t have a big deposit you can’t do much with the banks.”

The deposit needed for a typical house in Sydney is more than $200,000.

The OwnHome concept was launched four months ago with startup funding from Commonwealth Bank’s x15 Xccelerate program.

After getting an application approved, customers choose their homes and pay an upfront fee with the agreement they will buy the home from OwnHome at a pre-arranged price within three to seven years.

OwnHome organises the purchase and makes its money from the upfront fee and much of the rent, but part of the latter goes into a purchase offset that’s equal to 2.5 per cent of the home’s value each year.

Once the purchase offset has been built to 12.5 per cent of the value of the home it becomes enough for the renter to switch to a bank mortgage and the property title is put in their name.

Renters who decide not to buy forfeit that equity stake.

Zaheer Jappie, 34, and Michelle Saunders, 35, will soon move into a rent-to-own home near Campbelltown and said not needing a deposit and “locking in a price” were the main draws.

“The speed we could get into the market was a real attraction because prices are increasing quickly,” Mr Jappie said.

The family are looking forward to moving into their home soon. Picture: Jonathan Ng

“The way the property market is going, you have to save up for 10 years just to get a look in, but by the time you’re there prices have grown. This just took us a few weeks.”

Mr Jappie added that they consulted with OwnHome on the property selection as the home needed to meet certain standards.

“They build a profile of listings for you, but we basically got the home we wanted,” he said.

Another OwnHome condition is that the pre-arranged price will grow 3.8 per cent per year. Were the value to grow at a higher rate, the renter would pocket the extra equity gains.

History shows Sydney prices have not grown every year.

Prices grew 25 per cent over the past year, but growth was flat the year prior and values went backwards in 2018. The market was also flat between 2010 and 2013.

Mr Jappie said he was confident the value of his home would increase faster than the rate in the OwnHome agreement. “The market will have to keep growing for us to get the loan, but we think it will.”