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Rent-to-Buy a win-win system

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  • 04-11-2015 1:29pm
    #1
    Solon9
    Registered Users Posts: 2 ✭


    Hi folks,

    The Rent-To-Buy scheme is a solution for Developers, Landlords and those stepping onto the property ladder, but why is it that only very few take this chance?

    Do you have experience with this system of purchase, good or (unexpectedly) bad?

    Are you offering this in North County Wicklow?

    So why do I think it is a Win-Win solution?
    1. The Developer/Landlord has a secured income for a period of time and doesn't lose any current property value.
    2. The buyer doesn't need to have a huge lump sum as a down payment and his bank will see the ability for his continued mortgage re-payments.
    3. The bank can grant the mortgage without a huge lump sum, as the value is agreed between buyer and seller and the 20% down payment is reduced from the agreed price over time by the rent payments.
    4. If the buyer cannot keep up the payments or a change in the life situation occurs the buyer hasn't lost more than his rent and the seller still has the valued property to be sold.

    With this scheme the current housing situation can be eased as well!
    Tagged:


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    #2
    Shedite27
    Registered Users Posts: 9,395 ✭✭✭Shedite27


    Solon9 wrote: »
    1. The Developer/Landlord has a secured income for a period of time and doesn't lose any current property value.
    That's a bad thing for them. Developer wants to sell the house, get the money, then move on to the next development.

    Asking the developler to become a landlord means they need to work for 20/30 years.


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    #3
    The_Conductor
    Moderators, Society & Culture Moderators Posts: 32,285 Mod ✭✭✭✭The_Conductor


    In addition- there are rather severe tax implications for the developer- not to mention all the downsides of becoming a landlord, tenancy law, the resources tied up in the asset etc etc.

    Developers are continuing to have severe issues accessing finance- they do not have the money to tie up in a venture like this.

    From the tenant's perspective- mortgage lenders will not view the 'rent' paid as a deposit on the property- a separate deposit is sought (this alone is why this type scheme is so rare in Ireland).

    On top of all of this- what happens in a falling market where the tenant is not happy with the price they have locked in at contractually? Is the developer supposed to take a hit on it?


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    #4
    Solon9
    Registered Users Posts: 2 ✭Solon9


    That are great and valid point that were raised, but:

    @Shedite27 and @The_Conductor:
    The developer is not a Landlord as long as the buyer doesn't default or return the property, he is still a seller.
    The Rent-to-Buy is an asset that can be a security for the Developer.

    @The_Conductor:
    If the market takes a plunge, well that is the risk of the buyer, as it is with traditional mortgages as well.
    I asked two banks so far, and both were accepting the rent-to-buy payments as down payment (as long as the property value is still equal or higher than the original agreed value). But this may be down to the hypothetical nature of my enquiry and the personal relationship to the respective bankers.
    in both cases they also insisted to be part of the deal in the beginning.


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    #5
    ted1
    Registered Users Posts: 23,508 ✭✭✭✭ted1


    Solon9 wrote: »
    Hi folks,

    The Rent-To-Buy scheme is a solution for Developers, Landlords and those stepping onto the property ladder, but why is it that only very few take this chance?

    Do you have experience with this system of purchase, good or (unexpectedly) bad?


    2. The buyer doesn't need to have a huge lump sum as a down payment and his bank will see the ability for his continued mortgage re-payments.

    4. If the buyer cannot keep up the payments or a change in the life situation occurs the buyer hasn't lost more than his rent and the seller still has the valued property to be sold.

    With this scheme the current housing situation can be eased as well!

    The buyer, is in a weak position and if he cant raise the deposit has very limited buying power and hence has a tiny selection


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    #6
    L1011
    Registered Users Posts: 68,691 ✭✭✭✭L1011


    Banks do not take the "rent" figure as savings or a deposit in their calculations of LTV and saving ability, so the purchaser is generally still unable to get a mortgage after the rent-to-buy period. This is why these schemes, which were everywhere a few years ago, stopped dead.


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    #7
    Flatzie_poo
    Registered Users Posts: 562 ✭✭✭Flatzie_poo


    Solon9 wrote: »
    @Shedite27 and @The_Conductor:
    The developer is not a Landlord as long as the buyer doesn't default or return the property, he is still a seller.
    The Rent-to-Buy is an asset that can be a security for the Developer.

    There are severe complications with using non-liquid assets.

    Banks aren't favorable on these unfortunately, and complication can arise if they call on the property, due to the tenants' rights.

    R2B is good in theory.


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    #8
    The_Conductor
    Moderators, Society & Culture Moderators Posts: 32,285 Mod ✭✭✭✭The_Conductor


    Other issues-VAT @ 13.5% is chargeable on a new home- but not on a secondhand property. Revenue have not looked kindly on people trying to claim these are secondhand properties- because there is a future sale date on the property- and some people- including forum users here- have ended up in court over it.

    The rental income- is taxable income for the developer- on which tax would be due- wholly aside from any other complications. How would this feature in the rent-to-buy scenario- the net amount is offset against the property?

    And then- think about a falling market (apartments are falling in Dublin again- its not a stretch to imagine house prices will follow them before long). The 'purchaser' is paying a 'rent' on an asset which has a falling value. If they decide after 3 years (or however long)- that its not worth their while buying the asset at the contractually agreed price- aside from the fact that they have paid 'rent' for the duration- they could potentially walk (regardless of the simple fact that they will have trampled all over their contract with the developer).

    There is far too much uncertainty- esp. in a a market as volatile as the Irish market.


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    #9
    the_syco
    Registered Users Posts: 37,299 ✭✭✭✭the_syco


    Person rents to buy house at valued at 300,000
    Rents for 2 years, gets a big deposit.
    Goes for mortgage, but the house is now valued at 200,000 and the only person who "wins" is the developer.

    Thus, it only works if house prices are on the way up.

    But if house prices are on the way up, why would a developer bother with the scheme, when he can sell the same house for more?


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    #10
    witchgirl26
    Registered Users Posts: 2,139 ✭✭✭witchgirl26


    Solon9 wrote: »
    1. The Developer/Landlord has a secured income for a period of time and doesn't lose any current property value.

    Yes but they also have the responsibilities of a landlord which also has it's downsides. Plus they have to pay tax on each monthly payment as opposed to just the value of house.
    Solon9 wrote: »
    2. The buyer doesn't need to have a huge lump sum as a down payment and his bank will see the ability for his continued mortgage re-payments.

    You could argue that about anyone renting any property but ultimately a bank will want to see savings also as part of their stress test.
    Solon9 wrote: »
    3. The bank can grant the mortgage without a huge lump sum, as the value is agreed between buyer and seller and the 20% down payment is reduced from the agreed price over time by the rent payments.

    Actually banks will rarely grant a mortgage based on a rent to buy scheme as they have to follow rules laid out by the central bank & don't recognise rent paid as a deposit. The only time I've heard of it working is where the rent paid was held in a deposit account by the developer to be submitted as deposit for the house. But that is rare & there's no incentive for the developer to do this.
    Solon9 wrote: »
    4. If the buyer cannot keep up the payments or a change in the life situation occurs the buyer hasn't lost more than his rent and the seller still has the valued property to be sold.

    Actually it's not as easy as that to get out of it. At the end of the day the buyer may have signed a contract agreeing to purchase the property and the developer might not release them from that so easily. It all depends on what the market for the houses is like at the time. Also then the buyer is left in a position where they still need to save for a 20% deposit for a different place.

    House prices can change dramatically over the course of a year so the price that's agreed now could really favour one party over the other at the end. The buyer could end up having to pay more for the house than it's actually worth at that point, or walk away from the deal without a deposit saved. The developer could lose out if prices rise & he hasn't accounted for how much they rose in the original price therefore they lose out.

    There's a reason this fell by the wayside a number of years back.


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