 roundtownnews.co.uk (Written by Suzanne O'Connell)
BUY-TO-LET or rent has been popular for a long time. People with some spare cash invested in property and made it pay for itself through letting it out. This came from the days when property was seen as your biggest and best investment. You were encouraged to stretch yourself and get the biggest mortgage you could because in time the cost of the mortgage would be less and the value of your home would be more.
Those days are gone, at least for the time being. What we are seeing now is a growing number of people, particularly young people, who can’t/ won’t get on the property ladder as well as some older people who would rather appreciate quality of life now than maintain an expensive property that might end only just funding their residential home fees.
Renting property is flourishing. People wanting a change and unable to sell are exchanging their own mortgage payment for someone else’s and feel safer with this lower level of commitment. But will they always want to just rent the property? The inclination to own your own home is a strong one. More cautious we may be but we still aspire to be kings of our castles.
And so, rent-to-buy has risen as an alternative in a nervous market. In this topsy turvy economic climate is it a good option?
TO BEGIN WITH WHAT IS IT EXACTLY?
The idea is that you can rent a property long-term at a reasonable price and at some point in the future have the option of buying it. A percentage of the money you have paid in rent will be discounted from the eventual sale price.
So what are the benefits? It goes without saying that if you live in a property first you will have much greater insight into if it is the one for you, or not. For those worried in the wake of land grab and demolition orders, rent-to-buy provides time to check that all services are in place and that the property comes without legal complications.
As long as the price is fixed you are ‘building equity’ once the agreement is made. You are just paying your landlord instead of paying a mortgage.
Sound good? What’s the catch? It’s hard to see that there is one. You might argue that for the term of your rental you are still not committed which perhaps means that your integration into the area might be a little half-hearted. Having ready cash in savings accounts might prove a little too tempting for some and whilst waiting around you might find your savings eroded and perhaps even house prices rising.
For the seller, the rent-to-buy option is better than not selling the property at all. Generally, however, it is the tenant who benefits most - as you might expect in these times.
However, as with all legal arrangements, it is important to be clear about what the terms are of the agreement and that you are happy with them. Having legal representation is important. They will check whether:
• The purchase price is fixed or not
• The purchase price is at a realistic level
• There is any charge held on the house
And, of course, all the usual searches and checks you would expect when buying any property.
Advantages for the tenant/ buyer
• Time to get to know the property and decide whether it’s what the tenant wants
• May benefit from increases in housing prices in the meantime
• Ensures that there are no hidden surprises – all utilities are available
Disadvantages for the tenant/ buyer
• the process of purchasing is much longer and delays the decision
• available cash might be ‘eroded’ by other demands upon it
Advantages for the seller
• The property is occupied and less likely to be broken
into, attract squatters or be vandalised
• The property is earning money
Disadvantages for the seller
• The options rest with the tenant
• Does not release the money all at once
• The market might change significantly during the rental period but the seller is locked into the arrangement
Interested in a rent-to-buy purchase? It is important to seek professional advice concerning the terms and conditions. |
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