A new rent-to-buy scheme aims to make buying a first home more accessible, but financial commentators say buyers need to be wary of pitfalls before jumping at a deal.

The first customers of Sydney-based service OwnHome moved into their new house last week, and clients have also settled on two more properties.

Unlike other rent-to-buy services, OwnHome allows prospective buyers to choose any freestanding home or terrace of their liking.

“Because the national sport is refreshing Domain on weekends, customers can choose any home on the open market,” co-founder Tim Harley told The New Daily.

OwnHome will then buy the property and agree to a buyout price with the customer, which increases 3.8 per cent each year.

The customer then pays a monthly fee, which is much higher than typical rent costs but touted as being in line with saving for a deposit, and that earns them a 2.5 per cent stake in the home each year.

With housing affordability at its lowest point in a decade in Sydney, many first-home buyers might see these schemes as an easier way to enter the property market.

Canstar’s group executive for financial services, Steve Mickenbecker, says although these types of rent-to-buy deals can look attractive on paper, prospective buyers have to take into account a wide range of variables.

“If you go into a program like this, you’d want to get very good advice,” Mr Mickenbecker told TND.

“And get somebody to crunch all those numbers with you, so you can compare it with other forms of buying, because there are quite a few uncertainties with this.

“Now, it doesn’t mean that it’s not the right thing to do in some scenarios, but a lot of stuff has to go right at the end of the day.”

The main gamble here is pre-empting the property market.

If house prices continue to skyrocket, buyers who use OwnHome and similar schemes might end up paying below market value once they’re ready to buy.

But if prices don’t increase in line with OwnHome’s 3.8 per cent yearly increase, or if the housing market crashes, then buyers will be locked into paying more than they otherwise would have paid outright.

“If the market grows at more than 3.8 per cent a year, those are capital gains that the customer gets to get in whole,” Mr Harley said.

“If the market grows at less than 3.8 per cent a year, then that is an incremental cost to living in your home today.”

This might seem particularly attractive given how much the market has grown in the past 12 months, but this rapid rate of growth won’t continue forever.

Potential pitfalls

Like many home-buying schemes, this one comes with potential pitfalls and buyers should always proceed with caution.

Unlike renting and saving for a deposit independently, rent-to-own schemes lock customers into a specific property, at a specific price, years before they might be ready to settle.

Buyers must be confident about their financial situation and job security down the line.

“You should look at all those costs and say, ‘Are they sustainable to me?'” Mr Mickenbecker said.

He outlined several questions prospective buyers should ask themselves before entering into a rent-to-buy scheme:

• Is the house priced well in the market?
• Is the property appreciation [3.8 per cent per annum in the case of OwnHome] reasonable compared to what we know about the market?
• Is the rent reasonable?
• Are protections in place if the buyer or the company can’t settle?
• How confident am I that I’ll be able to buy in five years’ time?

Buyers also need to consider the usual factors when it comes to real estate.

“If it’s overvalued, you’re starting behind the eight ball,” Mr Mickenbecker said.

In the event a customer chooses not to buy a home they’ve been renting with OwnHome, Mr Harley says they will be reimbursed most of their purchase offset that had been added to the rent, provided the company can find a new tenant or sell the home.

“I guess the asterisk is, if the property market has gone down, then when we sell the property, we don’t have any of those profits to give back,” he said.

Still, he touts this as a more customer-friendly approach compared to other rent-to-buy services.