HomeMaker/Rent To Buy Schemes - Too Good To Be True?

_Kaiser_

Hey all,

Myself and the OH have been looking to buy a house in Co Cavan under one of the HomeMaker schemes that seem so popular lately.

For those unfamiliar with it, the basic idea is that it gives people who are unable to save a deposit for a mortgage (because they're currently renting etc), a chance to save the 10% required over the course of (generally) 2 years, but they can move into their chosen house immediately.
At the end of the 2 years, you then take the 10% you've been saving each month to the bank as a deposit for the rest of the mortgage.

However, the more we look into it, the more (apparently blatent) flaws in the scheme seem to be appearing - for example:


1. There seems to be very little information on what actually happens to the 10% deposit itself.

If it's considered "rent" then it seems that this may not count when you come to submitting your mortgage application.

If it's used to pay the mortgage during the 2 years, then surely it's gone and what happens then at the end? Does the seller give you the 10% back themselves? Is it recorded somehow that you've been paying the mortgage already?

Also, the 10% "deposit" that you're saving during the first 2 years seems to be a bit short of the repayments that would be required if you were to get a full mortgage now. In this case then, the fact that you've been saving (for example) €1000 per month for 24 months would mean nothing if the normal repayments were €1200, right?


2. Who's responsible for the maintenance of the house during the first 2 years? Is it you or the owner? What happens if the place goes on fire, or something else serious happens?


3. What if, at the end of the 2 years, you can't get a mortgage?
These schemes generally say that you will lose your 10% (which is fair enough), but what about any money you may have spent on the house in the interim? After all, you've been proceeding on the basis that this IS your house and you WILL get the money right? Will you get this investment refunded?


4. What happens if the value of the house drops over the 2 years? From what we've been told, a bank isn't going to approve a mortgage for a value that's above the going market rate at that time, regardless of what was agreed initially. What happens then?


All of these questions don't seem to have any definitive answers, and having looked at the websites of a few of the different schemes, none of them seem to be entirely sure themselves.
From what we've been told, none of the banks are actually backing these schemes either - though they haven't said they won't either! Most of the solicitors we've spoken to also seem to be very wary and/or negative about the whole idea too.
The problem is that as these initiatives are still fairly new in this country, the contracts that are agreed won't be tested for another 2/3 years.


To be honest at this stage our heads are wrecked with all this. Has anyone here actually completed the initial stages of one of these schemes, and what answers did you get to some of the above questions? No doubt there's others we haven't even thought of yet.

Any advice much appreciated.. IS this all too good to be true?

ntlbell

I know it's not really what you want to hear but personally I would stay well away from all these scheme's

if you're having problems saving for a deposit start looking at your current lifestyle.

do a spending diary for a month or two and see where your wasting money.

rents are dropping all over the country find somewhere cheaper to rent.

cut out any excess spending.

start saving.

with house prices continuing to fall and the drops getting bigger all the time the % deposit will get smaller and closer to you as time goes by.

there's no need to rush into it.

anything can happen during these scheme's like the builder going bust etc it just seems like builders want someone to start paying their interest back to the bank and put some sort of floor in the market.

saltowner

Kaiser2000 wrote: »

Hey all,

Myself and the OH have been looking to buy a house in Co Cavan under one of the HomeMaker schemes that seem so popular lately.

For those unfamiliar with it, the basic idea is that it gives people who are unable to save a deposit for a mortgage (because they're currently renting etc), a chance to save the 10% required over the course of (generally) 2 years, but they can move into their chosen house immediately.
At the end of the 2 years, you then take the 10% you've been saving each month to the bank as a deposit for the rest of the mortgage.

However, the more we look into it, the more (apparently blatent) flaws in the scheme seem to be appearing - for example:


1. There seems to be very little information on what actually happens to the 10% deposit itself.

If it's considered "rent" then it seems that this may not count when you come to submitting your mortgage application.

If it's used to pay the mortgage during the 2 years, then surely it's gone and what happens then at the end? Does the seller give you the 10% back themselves? Is it recorded somehow that you've been paying the mortgage already?

Also, the 10% "deposit" that you're saving during the first 2 years seems to be a bit short of the repayments that would be required if you were to get a full mortgage now. In this case then, the fact that you've been saving (for example) €1000 per month for 24 months would mean nothing if the normal repayments were €1200, right?


2. Who's responsible for the maintenance of the house during the first 2 years? Is it you or the owner? What happens if the place goes on fire, or something else serious happens?


3. What if, at the end of the 2 years, you can't get a mortgage?
These schemes generally say that you will lose your 10% (which is fair enough), but what about any money you may have spent on the house in the interim? After all, you've been proceeding on the basis that this IS your house and you WILL get the money right? Will you get this investment refunded?


4. What happens if the value of the house drops over the 2 years? From what we've been told, a bank isn't going to approve a mortgage for a value that's above the going market rate at that time, regardless of what was agreed initially. What happens then?


All of these questions don't seem to have any definitive answers, and having looked at the websites of a few of the different schemes, none of them seem to be entirely sure themselves.
From what we've been told, none of the banks are actually backing these schemes either - though they haven't said they won't either! Most of the solicitors we've spoken to also seem to be very wary and/or negative about the whole idea too.
The problem is that as these initiatives are still fairly new in this country, the contracts that are agreed won't be tested for another 2/3 years.


To be honest at this stage our heads are wrecked with all this. Has anyone here actually completed the initial stages of one of these schemes, and what answers did you get to some of the above questions? No doubt there's others we haven't even thought of yet.

Any advice much appreciated.. IS this all too good to be true?

Read your thread with interest. You have written a good summary of some of the issues associated with the “Rent to Buy” schemes. I am an informed observer, being involved in the housing industry, though not in the legal area.

A good solicitor should be able to verify the following, and ensure that any contract you enter into provides the necessary protections.

1. It is important that the “Rent” you pay is properly identified as a Deposit and is deducted from the contract price of the house. It should not be used to pay for a mortgage on the house, unless you own the house.
If necessary, a vendor should not have a problem in transferring the funds into his solicitors client account and asking the solicitor to verify that they hold a sum of money as a deposit for the purchase of a house.
Mortgage providers are wakening up to these deals and, if properly documented during the course of the Scheme, will take account of the payments history, which will in turn improve your credit rating score. What mortgage providers will not do is provide a Mortgage Offer 18+ months hence.
It is a lot easier for a mortgage provider to tick the right boxes if you can demonstrate that you have been saving at least at the level of the mortgage repayment level. If necessary you should set up a savings account to save the additional money on a monthly basis to demonstrate this ability. With mortgage rates coming down, and likely to continue for while yet, this is making mortgage repayments significantly more affordable, to the extent that at the entry level of the housing market, they may actually be cheaper that rent. (e.g. A €200,000-30 year mortgage from Halifax would initially cost €732 per month assuming eligibility for full tax relief on interest).

2. The responsibility of the house should be set out in a standard Tenancy Agreement. This makes you responsible for the standard wear and tear issues, and the landlord responsible for larger structural and services issues, including buildings insurance. You should have your own contents insurance. Therefore if the house goes on fire, your contents are covered and the owner is covered for the structure of the house.

3. If after the period you can’t get a mortgage, most house owners will still be eager to sell, (unless house prices have started rising again). You should be investigating mortgage availability 3-4 months prior to period ending so that you are in a position to negotiate an extension if necessary. You would be advised not to spend significant amounts of your own cash on the house in this period, as it is highly unlikely that anyone would guarantee to refund this expenditure. What may suit your tastes may not help the owner sell the house to a different purchaser if you were unfortunately not able to purchase yourself. This doesn’t necessarily mean you don’t spend anything, particularly in the last 3 to 6 months when you may have firm commitment on mortgage availability.

4. Banks are using any excuse to limit the amount of cash they will lend, and have been using valuations as one excuse to reduce the amount they will lend. Anecdotally I have heard that they are often getting their own private valuation, based on web-site information, as a means of reducing the valuation, which hence means the sale doesn’t go ahead. The reality for most vendors is that they should be talking to the local valuers who act for the mortgage providers and then setting their price on the basis of that information. If you are buying a new house, the chances are that the developer, (who is a professional house seller) will be more in tune to this reality and therefore more likely to cut a deal as in reality he knows that it is the mortgage providers who are now setting house prices, not the buyers and sellers. Many developers are now giving developer price guarantees, where if they sell similar houses cheaper, they’ll give you the difference back. If you are buying from a private seller, you may have to educate him to this reality.

5. Solicitors are paid to be cautious and to worry about worst-case scenarios. Often they play devils advocate and will appear overly negative. These schemes are new and so the legal profession will take some time to tease out the issues. By having an informed discussion with your solicitor and forcing him to think about the issues, will often get him identify specifically what areas of concern he has. Once you get specifics, you can then get them to deal with the issues. Persevere.

In general I believe that if most of the above issues are tackled these deals will be good for potential house buyers, particularly first time buyers who are struggling to deal with life’s costs and save at the same time. They are not for everyone though! Each person/couple needs to assess whether it is the correct package for them, as does the vendor. (I have come across instances where social welfare recipients believe that this will allow them to buy a house, with the Local Authority picking up the tab!!).
House prices may be dropping, but a lot of that is related to the amount-(or lack) of cash being made available for mortgages. When this bottoms out and they start lending again (which they eventually have to in order to make money), a house price floor will very quickly emerge. These deals were not around in the boom times, and will not be around if house prices and sales pick up again. They could be around for a year, it could be 3 years, they won’t be around forever. Take advantage while you can

kildareash

We too are trying to take advantage of a rent to buy scheme.
I still am very skeptical that it's all too good to be true!
Although we haven't seen the lease yet, our solicitor has and said he thought it was a good deal.
The details of our scheme are as follows:

3 bed end of terrace in Carlow Town.
Price €205k
€1000pm "Rent", 50% of this goes towards deposit
(That's the only negative point about ours, some schemes off 70-100%)
If prices rise, we buy at todays price, if same spec house is sold at a lower price in two years time we buy at lower price.
This it would appear is the only catch, I imagine it will be pretty difficult to prove two houses are the same spec, but we are hopeful that house prices might have started to rise again by that time.

My OH was saving for a deposit, but it probly would have been end of year or early next year, before we would have 10%.
At the minute, we are both renting seperately, so it won't cost us much more pm.
Between our own savings and the "rent", we will have more than the required deposit in two years time, and if prices drop further this year, we would be looking at buying outright.

ntlbell

kildareash wrote: »

We too are trying to take advantage of a rent to buy scheme.
I still am very skeptical that it's all too good to be true!
Although we haven't seen the lease yet, our solicitor has and said he thought it was a good deal.
The details of our scheme are as follows:

I'm sure your solicitor is very good but why are you putting any weight into what he regards a good deal when it comes to buying a house? his opinion is no more valid than your local shop keeper, he's a solicitor.

kildareash wrote: »

but we are hopeful that house prices might have started to rise again by that time.

Why are you hopeful?

kildareash

ntlbell wrote: »

I'm sure your solicitor is very good but why are you putting any weight into what he regards a good deal when it comes to buying a house? his opinion is no more valid than your local shop keeper, he's a solicitor.

I meant that the lease is ok...we were worried that it might throw up some issues.



Why are you hopeful?

We have spoken to a few people about this, and although no one knows what is going to happen, some so-called experts do believe that house prices will have started going up by then.
But I always try look on the bright side...

ntlbell

kildareash wrote: »

We have spoken to a few people about this, and although no one knows what is going to happen, some so-called experts do believe that house prices will have started going up by then.
But I always try look on the bright side...

well it should throw some issues

for example.

in ireland we don't have to disclose sale agreed prices.

How do you prove to a builder what a house was sold for if they don't have to disclose it?

all you can see is the asking price?

what did the solicitor think about this?

I'm all for looking on the bright side but when it comes to a 200k purchase i might be paying of for 30 years I prefer a bit of reality

ted1

if you are paying Rent, then when you go to buy the house are you still elgible for zero stamp duty on the new home, because tecnical speaking it is no longer a new home. does the property developer have to pay stamp duty as in the eyes of the revenue its an investment property??

shoegirl

If its somewhere you really want to live, its not a bad idea. Certainly better than paying rent on somewhere else AND trying to save. Despite propaganda to the contrary, rents in Ireland are still very high when you consider the income levels of those who live in that sector, which is considerably less than income levels in owner-occupied housing. I would like to see a real-world income check of those who are renting that exclude home owners, which would indicate if relative rents are still high relative to income. I suspect they still are.

mrgaa1

One rent-to-buy scheme I've seen has the following:

you pay a deposit - 2% of agreed sale price
24 months of "rent"
If you go ahead and buy then the monies ( deposit & rent ) is used as the deposit needed for the mortgage.
If you don't go ahead then you lose the money - which I suppose you would if you were renting.

As far as I know the sale price is agreed first - and then after 2 years another valuation is done and its the lowest of the two prices or the highest that is the agreed sale price.

I've seen some schemes where the rent is 50/50 - 50% towards a deposit and 50% is kept.
I suppose if you can rent and then get the monies or nearly all of it back then it can only be a good thing provided you can get a house in the area where you want to live