subject: The Benefits Of Rent To Buy [print this page] Rent to buy schemes are a relatively new concept in the UK, however they have been a fairly common way of acquiring a property in the United States for many years. Although the programs in the two countries have a slightly different way of working, the benefits are essentially the same.
Rent to buy allows an opportunity to affordably buy your own home. Many potential homebuyers are put off from the step into owning their own home because of the large deposits required; they may have credit issues or be concerned about the present risk of falling into negative equity. With rent-to-buy, homeowners rent the property for a fixed number of years, whilst allowing them to save for the final deposit and, if necessary, repair their credit status. Any amounts paid as rent are deducted from the purchase price, meaning that both a lesser deposit and a smaller amount of mortgage are required to complete on the property purchase. Should the value of the property fall from the fixed price agreed at the beginning of the rental term, the tenants have no obligation to proceed with the purchase, and are not locked in to any agreement.
A further benefit, which is particularly relevant to first time homebuyers, or couples in the early stages of a relationship, is that they get the opportunity to discover if home ownership is the way forward for their personal circumstances. People have been known to purchase a house and regret it in the short term due to considerations which they may have overlooked due to inexperience in the housing market. For example, if they had bought a property that looked fantastic in fine weather, but was truly impractical when it rained or lacked light when it was not sunny. It may be too far away from public transport facilities or a long walk to shops, which means a car is required if they want to go anywhere. By using rent to buy, one would able to determine how suitable the property was for long term habitation, and also give their relationship the opportunity to flourish without the immediate commitment of a joint mortgage.
Possibly the most rewarding benefit to any property buyer, is the potential for capital appreciation during the course of the tenancy. I mentioned negative equity above, and indeed there is still the possibility that over a three or five year period the property could decrease in value. However historically the likelihood is that property values in general will increase and tenants entering a rent-to-buy agreement will see positive growth of the rental period and be capturing a bargain at the time when it comes to decide whether to proceed with the purchase. Furthermore, as the money paid in rent (or a fair proportion of it, depending on the agreement) is deducted from the purchase price, the amount you have to find at the time it comes to exchange contracts could be as little as 80% of the agreed purchase price or, if the property has increased (say) 20% in value, just two thirds of what it is worth.
As you can see, there are a number of considerable benefits of purchasing your next house through a rent to buy scheme.
by: Oliver Darraugh
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