Rent to Buy - Do you dream about owning your own home?
NGU Homelettings can help you buy your home
Rent to Buy is a fantastic way for you to eventually own the property that you are currently renting or are going to rent. It is designed to help people purchase their own home in a set time period who are not able to do so at present due to various reasons. The following guide gives you an overview of the scheme, who is eligible, possible pitfalls and questions you need to ask before applying.
The reasons why people do our Rent to Buy scheme is generally because of the following:
- Can’t currently get a mortgage for whatever reason-credit issues, self-employed, work history for example.
- Haven’t got the deposit needed for the mortgage.
Buying the property
- You will agree a fixed price to buy your property.
- You will agree a fixed time frame to have the “Right to Buy” the property.
What rent do I pay under the Rent to Buy scheme until I have purchased the property?
- An Assured Short Hold Tenancy Agreement is offered at a fixed rent for the time period that you have the “Right to Buy” the property.
- This short hold tenancy agreement can be anywhere between 6 months and 5 years, thus giving you varying levels of security and time to save.
- By having a fixed rent, it gives you the opportunity to be able to save up for your deposit without the worry of annual rent increases.
- A fixed rent is also agreed because the seller has a guaranteed monthly rental figure with no voids. Therefore both parties have a beneficial agreement which a fixed market rent will achieve.
- Time periods are typically designed to allow you the opportunity to save up for the deposit for the property if you don’t have it or if you do, the time frames are set to allow you to be accepted for a mortgage.
- A typical example for time frames could be:
- Property Value £85,000.
- 10% deposits are generally a starting point to accrue a deposit as they are the normal lowest requirement for a mortgage=£8,500.
- 5 year rent to buy period will be mean £1,700 will be paid per year, £141.67 per month will be paid.
- After 5 years the 10% deposit will have been paid and you are now in a position to be able to buy the property.
What can happen to the deposit I am saving each month?
- The deposit you are saving each month is protected and is paid into a client account. There will be two payments each month; the rental amount and the “over payment” which will be the money for your deposit.
- The deposit you are saving each month is protected but it does have a default clause to it. If you do not buy the property in the agreed time frame, 30% of the deposit (minimum of £2,000) is none refundable and is paid to the seller.
- If you default on your rent during the Rent to Buy period, this also activates the deposit default clause (any loss of rent, eviction costs and Landlord legal costs will be deducted from this overpayment).
- In a nut shell, in the event that the Rent to Buy agreement is breached by both parties, whichever side has breached the agreement, the 30% overpayment towards the deposit will be paid to them.
Government Help to Buy ISA-an offer from the government to top up your savings for a mortgage deposit.
- Help to Buy ISA (which is applicable if you are buying for the first time) is an offer from the government to top up your savings for a deposit.
- For every £1 you save, the government will give you 25p. It’ll match that up to a maximum of £200 each month or £12,000 in total. So by saving £12,000 you’ll actually have £15,000 to play with.
- The government Help to Buy ISA scheme is a fantastic way to achieve 25% of your mortgage deposit absolutely free.
- Help to Buy ISA should be available from Autumn 2015 (ministers still need to finalise the details).
- When Help to Buy ISA’s do become available, 70% of the mortgage deposit you are saving, the “over payment”, will be paid into this account rather than the client account but the remaining 30% will still be paid into the client account to protect the default clause.
- Help to Buy ISA’s once available in autumn will stay open for four years to “activate” so there’s plenty of time to get one.
How is the market value of the property decided?
- The current market value of a property is decided by an independent RICS Chartered Surveyor. The surveyor will look at comparables of other similar properties on the market for sale and recently sold properties.
- For each year of the Rent to Buy, the agreed market value will be subject to a 1% increase each year.
E.g. Agreed current market value £85,000
Year 1= 1% increase in value £85,850
Year 2= 1% increase in value £86,708.50
Year 3= 1% increase in value £87,575.59
Year 4= 1% increase in value £88,451.35
Year 5= 1% increase in value £89,335.86
- The landlord is responsible for all category 1 repairs to the property during the Rent to Buy period (health and safety issues).
- The landlord will still carry out his/her statutory requirements such as an annual gas safety check and an energy performance certificate.
- Before you move into the property, the Landlord will have also carried out an electrical periodic inspection to confirmthat the electrics are safe. Any points that come out of this inspection that are health and safety issues will be rectified by the landlord.
- Any general wear and tear to a property that is not classed as category 1 (health and safety issue) is the tenants responsibility. An example of this could be an internal door that has slightly dropped and needs shaving to close. This would be the tenant’s responsibility to rectify.
- If you would like to obtain a Home Survey on your new property before starting the Rent to Buy, you certainly can do. A Home Survey is used by all mortgage companies to confirm that a property is suitable to lend on and highlights any structural problems or any problems with the fixtures and fittings within the property. You will still need to do a Home Survey when it comes to buying your property at the end of the Rent to Buy but by doing one before you enter into the agreement, you will know exactly the condition of the property that you are buying.
- The seller is committed to pay the mortgage during the Rent to Buy period.
- The seller is responsible for paying the building insurance during the Rent to Buy period.
How much does this scheme cost to enter into for the buyer?
- Rent to Buy administration fee:£750 plus VAT.
- The first month’s rent£0 (the first month is a rent free period).
- Solicitor fees range from£400 plus VAT to £650 plus VAT
We can recommend solicitors to you if needed (if you decide not to use a solicitor you must sign a waiver but we strongly recommend you use one).
- RICS Chartered Surveyor fees range from£125 plus VAT-£300 plus VAT
We can recommend a surveyor to you if needed (if you decide not to use a surveyor you must sign a waiver but we strongly recommend you use one).
- Home Survey fees ranges from£200 plus VAT to £400 plus VAT
We can recommend a surveyor for you if needed (if you decide not to instruct a surveyor you must sign a waiver but we strongly recommend you use one).
General Points regarding the Rent to Buy Scheme
- Be aware that any Rent to Buy is subject to approval from your landlord. He may want to sell the property to you or he may not.
- All tenants who enter into the Rent to Buy scheme must perform a credit check. A negative score does not necessarily mean that you will not be accepted for this scheme but allows both parties (the landlord and you) to understand your credit history.
- The market value of the property you are wanting to buy can go up or down. If the house goes up in value then you will benefit from this as you have agreed the price at the start of the Rent to Buy. If the price goes down during this period you will obviously not benefit.
- If you are looking to sign up to the Rent to Buy scheme, check with an independent mortgage advisor first and price up how much this would cost you in monthly mortgage repayments based upon a minimum of a 10% deposit.
- Every person and their situation is unique and the terms of each Rent to Buy are never the same.
Rent to Buy- Buyer Information
Before we approach your landlord to see if he is willing to enter into a Rent to Buy agreement on the property you are currently renting or about to rent, we need you to complete the following information: