RENT TO BUY
What is Rent to Buy?
Rent-to-buy is a practical solution for accessing property ownership without needing immediate bond approval from traditional banks. In this arrangement, the developer effectively steps in as the lender, offering financing at the prevailing prime interest rate plus 1%.
The agreement typically runs over a 24- or 36-month term. At the end of this period, the buyer is expected to apply for a conventional home loan through their preferred bank to finalize the purchase.
How do I secure a Rent to Buy agreement ?
A 6% payment of the purchase price is required to demonstrate serious intent. This is structured in three parts: 2% is payable upon signature to secure the property, another 2% is due three months later, and the final 2% is payable six months after the initial agreement.
After that, monthly interest payments will apply, calculated based on the outstanding capital amount of the property. Clients who choose to make additional lump sum payments—over and above the monthly interest—will see a reduction in the capital balance, which in turn lowers their future interest charges.
What are the benefits ?
The most obvious benefit is the ability to lock in—or freeze—the purchase price. This appreciating asset is secured at the value stated on the date of signature.
For example, if your property is valued at R4 million at the start of the agreement in 2025, by 2028 that same property may be worth R4.4 million. However, as the buyer, you’re still locked into the original purchase price, avoiding the impact of price escalations.
This model offers clients the luxury of securing a high-value property today—something that may otherwise be out of reach in the future due to factors like a poor credit score or being a new business owner with limited access to traditional financing.
It also gives banks a chance to assess your payment behavior over a two- to three-year period, building financial credibility in the process.
Additionally, by contributing towards the property over time, you create equity. For instance, if the property is valued at R4 million and you’ve already paid off R1 million over three years, you’re no longer requesting a 100% bond but rather a 70% one. This significantly lowers your risk profile in the eyes of the bank, increasing the likelihood of approval—since they now have security in the form of equity, should you default.
Do monthly payments made towards “rent” bring down the purchase price ?
Definitely not. Only payments made over and above the monthly interest installments will reduce the capital amount and, in turn, lower the monthly interest payments. This agreement should be viewed in the same way commercial banks operate. In a typical 20- to 30-year bond contract, the capital amount is not reduced upfront, as standard bond repayments primarily go towards servicing the interest on the capital.
Do I need to pay levies as a “Rent to buy” resident ?
Yes, monthly costs such as levies, rates, and taxes will apply and are payable at the end of each month. These charges are standard for all property owners and cover essential services like municipal rates, maintenance of shared spaces, and other operational expenses related to the estate or development.
Can I choose to sell the property after the 3 year term is up ?
Yes, once your R4 million property is fully settled with the developer, you’ll be in a strong position to sell it at its appreciated value.