Rent to Buy

[mortgage broker]

Another possible downside for the seller is that they limit thier lending ability until the tenant executes the buy option. Another risk to the tenant is the seller goes belly up and house goes to mortgagee auction.

[EagleEyes]

Depends on why their finance is stuck

Depends. They are committed to the TB so can't release their equity by selling, but RTB is usually a cashflow strategy. So if cashflow is the reason they are stuck to move on with more lending, it can actually help by balancing out a negatively geared portfolio.
As for TBs risk of mortgagee... can't escape the reality of them not having a direct relationship with the bank. A good RTB contract will outline what will happen in that instance and protect them as much as possible though.