Can anyone explain rent to own properties to me?

indierocker85

Hi guys

I live in Scarborough, and am planning my wedding, when we get married naturally we will want to have our own house.

I am wanting to buy, rather than rent. I saw a billboard somewhere about "Rent to Own"

Can anybody explain what these types of properties are? Does your rent buy the house off them?

Please advise, thank you

Save4ArainyDay

This is how a friend of mine does the business - I hope this helps you to understand


Whilst Rent 2 Buy is a relatively new approach in the UK, it has been widely used in Australia and the USA for many years.
So how does it work?
• You find a property that you would like to buy eventually, which is available on aRent 2 Buy scheme (
• You sign a standard rental contract (an AST), normally for 1-5 years.
• You pay an ‘option fee’ ** to take out an ‘option’ to buy the house at a fixed price within an agreed timeframe (this can be extended if agreed by both parties). This ‘option fee’ goes towards your purchase deposit.
• You pay your monthly rent and an additional monthly ‘option fee (this monthly ‘option fee’ also goes toward your purchase deposit).
• You treat the house as if it’s yours (as long as you look after your own house!). Update the house, refurbish it, add value in any way because it will be yours eventually.
• You exercise your ‘option’ to purchase the property within the ‘option’ period.
• You buy the house, typically needing a minimal additional deposit.
• If you change your mind and decide not to purchase, you can move out at the end of your tenancy term (or give two months notice at any time). Your ‘option fees’ and any bonus will not be returned as you did not complete the purchase. By issuing an ‘option agreement’ we had lost any rights to sell the property to anybody else during the option period, and potentially may have unexpected expenditure after you move out
The advantages:-
• Regular savings toward your final mortgage deposit.
• No mortgage needed until you buy. Your credit file can be improved over time.
• A pre-agreed fixed purchase price from day one. If in 2 years the property has gone up 10% you have made an instant profit!
• Guaranteed peace of mind. Fixed price, you get to rent and lock in any capital growth in the property whilst saving up the deposit.
• Any improvements you make to the property you get the benefit.
• If the value of the property has increased you also get the benefit.
Typically, the main advantage of rent to buy is rather than playing a game of ‘savings catch-up' whereby you can't save as fast as house prices rise, the price of the property will be fixed from the day you move in as a tenant. As the property will be yours one day, any time effort and money you put into its d!cor will not be wasted.

** There is an ‘option fee' payable at the start of the tenancy (instead of a conventional rental Bond/Deposit). This is usually around 2% of the ‘option purchase price’. This ‘option fee’ secures your ‘irrevocable right to buy' within the ‘option’ period but it does not tie you into doing so.

jonewer

What about the disadvantages?

What is the security of tenure?
What about maintainance costs?
Do you gain interest on your "option"?
What if house prices go down?

Running_Horse

Beware some schemes/scams around where you pay over the odds on rent and house price. I have seen these on Rightmove aimed at immigrants and those with dodgy credit history. In the end, if you want to own, there is no alternative to saving up the hard way. If you can't, it is unlikely you can afford the costs of owning and running a home.

Save4ArainyDay

If you use a search engine and look at "Rent To Own" you will see it is quite commonplace in the USA and is not considered to be unusual.

As for - What if prices go down - Well what if prices go up?

Only sure things in life are death and taxes!

jonewer

Save4ArainyDay wrote: »

Only sure things in life are death and taxes!

You mentioned what if prices go up as an advantage. TBF you shuold therefore have said what if prices go down as an equal disadvantage.

Hardly balanced and impartial advice else.

What about insurance? What if the place burns down?

Save4ArainyDay

The owner insures the property - not the tenant buyer

The tenant could just as easily have scraped together a deposit and then prices could fall - possible leaving them in negative equity.

There are may ways of purchasing a property with shared equity schemes and such like about these days. This way is just another path from renter to owner.

I am not advocating any particular way of buying.

I initially just answered Indierockers question as I know something about it and got the text from my friend's website (which you will note I did not promote nor refer to and in fact removed references to the company from the text before publishing.

Gingernutmeg

How does this work in terms of repairs etc? I'm genuinely curious, as I've seen quite a few local rentals come up with 'rent to buy' as an option recently. I can see the advantages for the LL (fixed sale price, a tenant who is - possibly - improving the property etc) but I wonder about the other side of it. What if the LL defaults on their mortgage during the years before the tenant commits to buy the property? Who pays for major repairs? What if one of the tenant's 'improvements' causes major problems?

Save4ArainyDay

From The Times Online

http://property.timesonline.co.uk/tol/life_and_style/property/buying_and_selling/article6812266.ece

jonewer

Gingernutmeg wrote: »

What if the LL defaults on their mortgage during the years before the tenant commits to buy the property? Who pays for major repairs? What if one of the tenant's 'improvements' causes major problems?

Well, that kind of what I'm wondering.

On the face of it, this scheme seems to offer all the disadvantages of renting togther with all the disadvantages of owning. Not to mention that you're probably restricted to paying top-whack for some shoe-box of a newbuild on an ex-land fill site, just like most of the shared ownership schemes these days.

You'd probably be better off just renting and saving a deposit independently.

Gingernutmeg

Save4ArainyDay wrote: »

From The Times Online

http://property.timesonline.co.uk/tol/life_and_style/property/buying_and_selling/article6812266.ece

Thanks Save4ARainyday, that's interesting. Those schemes sound different from the ones I've seen locally though, as the ones I've seen don't seem to be run by any kind of Housing Association. The ones near me seem to be being run by individual LLs through LAs, which is what's making me curious about the practicalities of it all. Also, the schemes in the article seem to be a bit more flexible?

eta: the ones I've seen haven't been for new-builds, but for the Victorian/Edwardian terraces that make up the bulk of the rental market round here. That's why I'm curious about how the schemes run when they're independent of any kind of Housing Association.