Renting with a contract to buy

JH-S1983

Setting the scene:
We are first time buyers (not yet bought) and last August entered into an agreement with a landlord to rent his house with 25% of the monthly rental payments going towards buying the house .We got this agreement signed up with a solicitor and we agreed on the value of the house at the time £325k. The agreement is for 3 years and we agreed we could buy at any point within that three years (we are now a year into the agreement) or choose not to buy at the end of it and forfeit the 25% we have contributing to buying.

We are currently saving for the deposit to be able to buy this house. The landlord has come to us and asked if we are ready to buy in the next 6 months. If we are, he will knock £10k off the value of the house. Taking the house value we agree to pay on to £315k. He wants to buy another house and wants to free up cash to pay his £10k stamp duty.
We haven’t got the full deposit yet to buy now and we were wondering if the following would stack up with a mortgage company when we came to buy.
We amend our existing contract to reflect the £10k deduction in price so its now £315k. We make a payment of £10k to him in the interim (written into the contract). We attribute the 25% payments we have already made towards the house so far against this making the new balance that we need to pay £300k.
If we wait until the contract is up in 2018, we will have paid £10k already and would have continued to pay the additional 25% (rental) payments towards buying the house leaving the remaining balance on the house at £294k at the end of the contract.
The question…..
A 10% deposit on this is £29,400
Will a mortgage provider see that we have already paid £21k to the landlord and allow us to make up the deposit by just paying £8400? Or would they require us to put a deposit down on the full amount of £29400?

theartfullodger

Doubt it, sounds most overcomplicated & suspicious.

Not much point asking us, speak to a couple of big brokers. Worth researching, someone might.

What's the backup plan if you can't find lender?

andrewmp

JH-S1983 wrote: »

Setting the scene:
We are first time buyers (not yet bought) and last August entered into an agreement with a landlord to rent his house with 25% of the monthly rental payments going towards buying the house .We got this agreement signed up with a solicitor and we agreed on the value of the house at the time £325k. The agreement is for 3 years and we agreed we could buy at any point within that three years (we are now a year into the agreement) or choose not to buy at the end of it and forfeit the 25% we have contributing to buying.

We are currently saving for the deposit to be able to buy this house. The landlord has come to us and asked if we are ready to buy in the next 6 months. If we are, he will knock £10k off the value of the house. Taking the house value we agree to pay on to £315k. He wants to buy another house and wants to free up cash to pay his £10k stamp duty.
We haven’t got the full deposit yet to buy now and we were wondering if the following would stack up with a mortgage company when we came to buy.
We amend our existing contract to reflect the £10k deduction in price so its now £315k. We make a payment of £10k to him in the interim (written into the contract). We attribute the 25% payments we have already made towards the house so far against this making the new balance that we need to pay £300k.
If we wait until the contract is up in 2018, we will have paid £10k already and would have continued to pay the additional 25% (rental) payments towards buying the house leaving the remaining balance on the house at £294k at the end of the contract.
The question…..
A 10% deposit on this is £29,400
Will a mortgage provider see that we have already paid £21k to the landlord and allow us to make up the deposit by just paying £8400? Or would they require us to put a deposit down on the full amount of £29400?

New value = £315k
Your Deposit saved via rental - £15k

10% of £315k is £31,500 so you'll need a further £16,500 for a 10% deposit. Presumably the landlord will be giving you back your £15k to use as a deposit?

No lender will consider the reduction in asking price as a deposit and unless you want to complicate things considerably, you'll want your landlord to return your £15k "savings" in cash prior to exchange and provide a letter confirming this is your money and not a loan etc.

JH-S1983

Thanks for the replies,

Why suspicious? Essentially we've agreed a value on the house and had it drawn up with a solicitor that payments made to the landlord count s a deduction on the value?

Sorry Andrew- maybe didn't explain it so well. 25% of our rent every month counts towards payment to the house so essentially when we come to buy we wouldn't owe £315k as the monthly payments are attributed to that, plus any lump sum?

franklee

Typically these schemes can be very dodgy and I certainly wouldn't be handing over another 10K!

Does the landlord have a mortgage on the property and have you seen written confirmation that the lender has consented to the let and the option for you to buy? If not you could be left with nothing if they repossess.

Is any mortgage in the landlord's own name or his he managing the house for the real owner?

Have you seen proof the mortgage is being paid?

Google property options Ben Rogers for some idea what risks you may face.

Cakeguts

This sounds remarkably similar to a rent to buy scheme that is illegal in many of the US states because it is so risky for the buyer. In many cases the tenant never ends up owning the house they think they are paying for.

andrewmp

JH-S1983 wrote: »

Thanks for the replies,

Why suspicious? Essentially we've agreed a value on the house and had it drawn up with a solicitor that payments made to the landlord count s a deduction on the value?

Sorry Andrew- maybe didn't explain it so well. 25% of our rent every month counts towards payment to the house so essentially when we come to buy we wouldn't owe £315k as the monthly payments are attributed to that, plus any lump sum?

How much does 25% of your rental payments total?

fairy_lights

I can't get my head around this at all. The 25% of your rent that goes towards purchasing the house - will he just knock that off the purchase price, or give it back to you, to use to buy the property?
I can't see any lenders giving you a mortgage with only £8400 as a deposit to be honest. It just doesn't sound like you can afford this house, you should be saving towards something more affordable instead of pining all your hopes on this bizarre scheme.

G_M

Sounds like the final payment at Completion will be reduced by whatever amount has been paid monthly with rent at that point. Not much help with the deposit.

I'm amazed a solicitor has cooperated with this scheme - as franklee points out, there are many risks.

At the least, the OP should have a Charge on the property already to protect himself. If the owner went bankrupt/ got reposessed his paymnts would vanish and he'd lose the property. Indeed, what would stop anunscrupulous owner simply selling after 2.5 years to another buyer?

But perhaps we're worrying too much and a Charge has been lodged with the Land Registry.........