Locked out of a home loan? Rent-to-buy homes offer hope, but risks are high

For South Africans locked out of the property market, rent-to-buy homes are emerging as an alternative path to home ownership.

But the model is complex and carries significant legal risk if not structured properly.

Advocate Thabo Motloung said rent-to-buy must be agreed upon up front and cannot be introduced midway through a lease.

“It must be an agreement up front. It’s not anything that any of the persons involved can assume,” he said.

How rent-to-buy homes work

A rent-to-buy agreement allows a buyer to occupy a property while making monthly payments that contribute towards purchasing it.

Part of the payment is treated as rent, while another portion goes towards the eventual purchase price.

Ownership only transfers once the full agreed amount has been paid.

“The transfer does not take place… it is only when the full amount has been paid,” Motloung said.

This differs from a traditional home loan in which a bank pays the seller upfront, and the buyer repays the bank over time.

In rent-to-buy, there is no bank involved. The agreement is directly between buyer and seller.

Who qualifies for rent-to-buy homes?

The option is often used by people who cannot qualify for a home loan but still have income or access to cash.

This typically includes buyers with poor credit histories or those who have undergone debt review or sequestration.

“You’d find that you have access to lots of cash, but you are not creditworthy,” said Motloung.

The risks of rent-to-buy homes

The biggest risk is failing to maintain consistent payments.

If payments stop, the seller may cancel the agreement, and the buyer could lose part of what they have already paid.

“If you start dropping, the seller is going to be uncomfortable because they have risked the property,” Motloung said.

Unpredictable life events can also derail the agreement.

Contracts must account for situations such as job loss or death, which could make it impossible to continue payments.

“It really, really depends on the terms agreed between the parties,” he said.

What happens if the deal falls through

If the agreement collapses before the full purchase price is paid, the buyer does not automatically get all their money back.

A portion of the payments is usually kept as rent for the time the buyer occupied the property.

The remainder may be refunded, depending on what was agreed in the contract.

“You must say how much of what I’ve paid will be refunded and how much you would keep as rent,” Motloung explained.

Without clear terms, disputes can arise quickly.

Hidden risks in the property itself

Buyers also need to consider the financial position of the seller.

If the property is bonded and the seller falls behind on payments, the bank could repossess the home.

To reduce this risk, buyers should ensure that payments go towards settling any existing bond.

“You need to make sure… that debt is being serviced,” Motloung said.

Costs of rent-to-buy homes

Even though there is no bank loan, buyers must still pay transfer and conveyancing costs once the property is fully paid off.

These costs are separate from the monthly payments and are typically due at the time of transfer.

“You might have to put it aside because that money does not go to the seller,” he said.

Why rent-to-buy contracts must be airtight

Legal experts stress that rent-to-buy agreements must be carefully drafted by professionals, preferably conveyancers.

Poorly written contracts can expose both parties to disputes and financial loss.

“If it doesn’t comply with the formalities, it’s going to be invalid, and that’s going to be blood on the floor,” Motloung warned.

He added that unclear agreements often lead to prolonged legal battles.

“At the time when there’s a dispute, it’s my word against your word.”

Rent-to-buy homes: a risky path to ownership

Rent-to-buy can provide a route into home ownership for buyers excluded from traditional financing.

But it requires stable income, careful planning and strong legal safeguards.

As Motloung put it: “Make sure that at the beginning of the relationship all the terms are clearly defined and you understand what you’re getting into.”

Related: why many South Africans are turning to alternatives like rent-to-buy

Young South Africans are delaying home ownership. Many are choosing to rent instead of buying due to high living costs and affordability pressures. One expert said the ‘cost of repayment on a bond versus… rental’ is pushing people toward renting.

Rent-to-own demand is already there. Surveys show some renters are willing to pay more if it leads to ownership, with rent-to-buy structures allowing part of rental payments to count towards buying a home.

Affordability remains the biggest barrier.

Around 10% of South Africans cannot buy property due to poor credit records and economic constraints, limiting access to traditional home loans.

Buying a home comes with high upfront costs. Transfer duties, legal fees and other costs can run into tens or even hundreds of thousands of rand, making entry into the market even harder.

Property prices are pushing buyers out. In cities like Cape Town, rising prices and foreign demand are pricing many locals out of the market, increasing pressure on renters.

Rental pressure is rising, too.

Limited rental stock and high demand are driving tensions between landlords and tenants, with affordability challenges affecting both sides.

Some buyers are turning to alternative strategies. Options like buying-to-rent are being promoted as ways to enter the market when direct ownership is unaffordable.

Rent-to-buy homes can open the door to homeownership for buyers excluded from traditional financing.

But without the right contract, that opportunity can quickly turn into financial loss.

For more information, listen to Motloung on 702/CapeTalk’s The Aubrey Masango Show using the audio player below: