Jon Green, Chief Executive of The Lease Option Company, offers his advice on 'rent-to-buy' contracts
What’s the difference between ‘rent-to-buy’ and ‘lease options’?
‘A ‘lease option’ is the technical definition for a specialised tenancy agreement allowing the tenant to rent a property for a length of time with the option to buy it outright at the end of the rental period. Lease options are sometimes called ‘rent-to-buy’ schemes for this reason.’
How does it work?
‘Although the jargon can sound confusing, the basic idea behind a lease option is straightforward: the lease option provider will acquire your home for you, either by buying on your behalf or working with other landlords, and allow you to move in as a rent-paying tenant. You’ll then have the option to buy the property outright after a fixed period of time, typically three to five years, at a price agreed when you first moved in. You’re under no obligation to buy at the end of the rental period.’
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Do I pay a deposit?
‘The lease option provider will usually ask for an initial upfront payment for the option. This can be as low as two per cent of the property’s value so it’s much less than most mortgage lenders will require. This payment is knocked off the agreed price for the property.’
What are the benefits of purchasing property this way?
‘For many first time buyers, lease options can offer a much better deal than a conventional purchase. You don’t need to take out a mortgage straight away, giving you time for your financial position to improve so you can afford to buy at the end of the rental period. While that happens, you get to live in a property you can think of as your own home. And you’re on the property ladder with the purchase price locked in from the start, giving you the opportunity to make a capital gain if prices rise sufficiently as well as the protection to avoid most of the financial loss if prices fall.’
Are there any downsides?
‘Taking out a lease option is a major commitment – just like buying a property. You’ll be living in the same place for the agreed rental period, which means that you have to think carefully about your future plans before you sign up.’
Will the rent be higher than a normal lease?
‘The rent you pay with a lease option will be slightly higher than if you were just a tenant. Part of this additional rent is taken as payment for the option to buy along with the amount paid upfront. This total option payment is knocked off the agreed purchase price if you buy. In effect, this means that some of the rent helps you to build a mortgage deposit for the future. If you don’t exercise the option then the cost of higher rental payments is not refundable. However, this is still better than having bought a property which has fallen substantially in value.’
Is this scheme widely available?
There are only a small number of lease option providers in the UK at the moment. If you’re based in the London area, contact The Lease Option Company (020 8947 8377/www.theleaseoptioncompany.co.uk).’
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11 comments
I am interested in selling a flat with a tennant in it, the flat is completely revamoed, new bathroom, kitchen etc
I am interested in a rent to buy property, how do I find them? I'm looking in the areas of Norfolk, Suffolk or over the north west side. Can anyone help?
I am currently offering the Rent To Buy Scheme in the North London area and Stevenage.
Please contact 0800 012 2375 for further details
Hi, we have a 3 bed flat in Dartford, Kent, looking for a rent-to-buy tenants. Price can be very attractive for first-time buyer. Pls contact me if you're interested.
Private landlords and investors are offering these types of deals, this work well both parties. I have properties in the North East of England and we are currently offering some of there under the Rent to buy option, the interest we are getting from our advertising is looking very favourable. Dealing directly with a Landlord saves money and also gives more flexibility to both parties.
Remember to get any contract checked by a knowledgeable solicitor before entering into a contract and be aware of your obligations if renting to buy.
Hi,
If you are a tenant or landlord looking for a lease option or rent to buy service contact 0845 434 6454.
Eileen...I have a couple of properties which I believe may be of interest to you. I am looking into using lease options on them. How do I get in touch?!
Thanks,
Stuart
Hello, I read this article with interest. We have many first time buyers in our network with credit problems and lack of deposits. Luckily, we also have many experts who are able to point those with queries in the right direction. Feel free to contact me on the email above.
This sounds really interesting we were recently refused a mortgage because we don't have a high enough deposit now that mortgages have become so much harder to get. Last year we would have been fine! We were waiting for prices to fall and now we can't get a mortgage! We were looking at flats in West London - Parsons Green area. Will check out Easy Rent to Buy - thanks Jim!
I was looking into this too for the North London area, and am currently registered with a company called Easy Rent 2 Buy. We're hoping to get somewhere soon and then work towards getting a mortgage which right now is harder than ever!
If it works out i can definitely see it becoming more popular.
I am interested in buying a house but am trying to reastablish my credit I have one more year for bank approval. I was thinking that maybe I could rent to buy a house for a year and then the bank would look at me for the loan after a year. I live in British Columbia can anyone point me in the right direction to find out how I can have this done?
Thank you much