Rent to Own (Tenant Buyer)

 

The basic idea behind a Rent to Own is to provide a deposit to the Tenant Buyer this default setting is good practice since the Tenant Buyer knows how much the property is going to cost and can start saving for a deposit. The Rent to own can also eliminate the uncertainty of chains and moving costs. The downside is that property prices may fall leaving the Tenant Buyer with a dilemma either pay over the odds or continue with the Rent to Own. This distinct disadvantage can also be seen as a saving grace because if property prices fall then at least you know - not to buy the property. In this instance you can either walk away with a deposit (See how the deposit is built up from Figures below) or you can start again to redress the issue. Rent to Own schemes can provide the following solutions to Tenant Buyers.

  • Tenant Buyer doesn’t initially have to take out a mortgage
  • Potential equity from a rising market
  • Potential savings from a market downfall
  • Its just an option to buy not an obligation
  • Help existing tenants who cant get a mortgage

Some advantages in Rent to Own Schemes for Tenant Buyers

  • You can move into your home as little as 7 days
  • Redecorate, carry out home DIY - YOU benefit from any added value by enhancing YOUR home
  • The purchase price is fixed at the outset. You gain from any price growth!
  • No mortgage is required until end of lease term (but can buy at any time)
  • Legally approved solicitor contracts
  • A first time buyer struggling to get onto the housing market
  • Struggling to raise a large deposit
  • Currently renting but want to own your own home
  • Have impaired credit and can't raise finance
  • Have recently moved to the UK

This is how it works

The purchase price is £250,000
Minimum deposit of £5,000
The normal rent is £1000 per month.
You will pay a minimum of £1200 per month.
Every month we will add a minimum of £200 per month towards your deposit.

End of Year 1,2 and 3.

£250,000
-£5000 deposit paid
-£2400 (extra you have paid)

At the end of year one you would owe £242,600
At the end of year two you would owe £240,200
At the end of year three you would owe £237,800

During that time you have saved up a deposit of £12,200 (4.88%)
During the three years you have stayed at the property it may value at £280,000.
You have 30k equity which can be used towards a deposit for your mortgage

 

Now lets have a look if you pay a bigger deposit and £50 more per month.

£250,000
-£7500 deposit paid
-£3000 (extra you have paid)

At the end of year one you would owe £239,500
At the end of year two you would owe £236,500
At the end of year three you would owe £233,500

During that time you have saved up a deposit of £16,500 (6.6%)
During the three years you have stayed at the property it may value at £280,000.
You have 30k equity which can be used towards a deposit for your mortgage
Price growth and rent deposit payments provide your deposit.
The purchase price is fixed at the outset. You gain from any price growth!

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