Private rent to buy agreement?

by Readers Question

8:27 AM, 22nd October 2018
About 4 weeks ago

Private rent to buy agreement?

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Private rent to buy agreement?

I want to sell a property I’m currently renting to the tenant that lives there. The tenants are looking into getting a mortgage but they are unable to raise a deposit. Can I let them rent the property for 12 months and I accept rental income this as their deposit to buy?

Is this legal ?

Thanks for any advice anyone can offer.

Jennifer



Comments

Neil Patterson

8:30 AM, 22nd October 2018
About 4 weeks ago

Hi Jennifer,

I can't see how this makes any commercial sense as you are already renting the property so will be no better off?

Also the rent will not be considered deposit by the lender who will still need to see the full deposit coming from the tenant's own funds eg. not given to them.

Robert Mellors

8:57 AM, 22nd October 2018
About 4 weeks ago

Hi Jennifer

There is such a thing as a private rent to buy, but it is rarely used and highly discredited, because it works a bit like a hire purchase agreement in as much as the person hires (rents) the property from you for X amount of time, and they only get legal ownership after the final payment, so if any payments are missed or the final payment is not made, then it is simply a lease/tenancy agreement, so of no use to anyone! - I can't remember the full ins and outs of it, but I think it can get quite complicated, and both landlords and tenants can very easily run into legal difficulties.

You scenario sounds a bit different, as all you are wanting is the deposit, with the balance being paid via the tenant obtaining a mortgage. However, I suspect that you may run into similar legal issues, plus, as Neil says, the tenant's rent may still not be considered as a purchase "deposit" for the purposes of obtaining a mortgage.

If the tenant is really serious about buying the property, then they will find a way of raising the deposit, either by savings or borrowing.

trevor white

11:15 AM, 22nd October 2018
About 4 weeks ago

Have a look at gifted deposits.
Such deposits are recognised by some lenders if they are 'gifted' to close family members etc.
A while back you were with some lenders able to sell at say 15% below market value and treat this as a 15% deposit.
There was at one time 125% mortgages and currently there are 100% mortgages.
There are many options available for your situation but you need to engage a specialist broker/lender and competent conveyancer.
I a while back i bought property and was gifted 5% of the deposit from a major developer.
Admittedly the whole mortgage market has become very restricted since the crash in 2008.

Chris Harris

17:42 PM, 22nd October 2018
About 4 weeks ago

Depending on the level of capital gin you have made , and the length of time the tenancy has been in place, you might like to sit tight until after the autumn statement. It may include an, inevitably convoluted, deal on CGT when the property is sold to sitting tenant that results in them receiving a lump sum that might be used as a deposit.

The original proposal seemed simple, but it would in effect likely be very complicated.

Worth seeing what happens

AJ

6:50 AM, 23rd October 2018
About 4 weeks ago

rent to buy schemes are quite common, where the tenant pays a discount rent, plus 1/60 of the deposit of the agree property price (adjusted for inflation). The tenant then becomes responsible for the upkeep of the property.

At the end of the five years, the sale price can be adjusted if house prices have fallen, and the landlord passes back the deposit money for the tenant to buy. Obviously an agreement would need to be in place.

Robert Taylor

12:14 PM, 23rd October 2018
About 4 weeks ago

This type of agreement falls in to the category of a lease with the option to buy commonly known as a lease option.
The best person to contact regarding the setting up of such an agreement is Shimon Rudich of MS Law see:
https://ms-law.co.uk
Shimon is likely to give you some free advice on how it would work and can then complete all the legal work for you.


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