Selling to a tenant through a rent to buy scheme?Make Text Bigger
My sister and I inherited the home where we grew up, modernised it, and have been letting it to a great couple for 3 years. We told them before signing the first AST that it would be our intention, one day, to sell the house (due to its distance and relatively poor yield compared to closer locations). As it happens, my young sister wants to buy her own place and my wife would like a range cooker and a big kitchen to put it in 😉
We mooted the idea when we inspected/dropped an Xmas card round some six months ago (hoping to take advantage before the CGT rules changed in April) but typically since then, the topic has come up for discussion again and the tenants are looking at funding through a rent to buy arrangement. They can’t obtain a traditional mortgage as one partner is a mature student and wont graduate for two years.
As far as I understand, we agree a price at today’s value and the tenants are then responsible for maintenance etc but still pay rent as per AST until a mortgage is agreed. There is a legal agreement that they will buy the house at a fixed time in the future (2-5 years), the idea being that in that time, they can save a deposit while living in ‘their’ house.
Has anyone had any experience of this or are there any pitfalls/scams I should be aware of?
Am I correct in thinking that for the fixed time while saving for a deposit, the rent paid is still ours, or does that form part of the tenants deposit? What about the ‘overpayment’ they make each month to bolster their deposit?
What happens if they arent able to get a mortgage in the future (lending criteria, redundancy, house values falling – a flat market since 2010 according to est agents)? Is the legal agreement enforcable (I’m of the impression that they’ll be able to get a x4 joint mortgage to buy the house but havent got any liquid capital, so not really worth suing?) or what happens if they renege on the agreement?
Who owns the property between the time of agreeing to sell at X amount and when the mortgage is obtained a few years in the future?
And what the heck is a range for the kitchen?
The tenancy is due to come to an end in August, and we’ve agreed will run on periodically until an agreement is signed or it is put on the open market if the rent-to-buy proves fruitless
Many thanks for your thoughts
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