Rent to buy

Although property prices have decreased, there is still a lack of mortgage options available for first time buyers. Many lenders now also require larger deposits than they did 18 months ago, meaning that despite increasingly favourable prices it’s actually more difficult for many first time buyers to get on to the property ladder.

Because of this increasing numbers of people are now considering a new type of purchase called a lease option agreement. A lease option is basically a form of specialised tenancy agreement that allows 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 (sometimes called a ‘rent-to-buy’ scheme).

The price to purchase the property is fixed before the tenancy agreement is signed and the rental period is normally three to six years. The renter-buyer also pays a nominal deposit up front of around 2-3% of the market value of the property as a form of commitment (as opposed to 5-20% if buying straight away).

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The rent you pay with a lease option will be slightly higher than if you were just a tenant. However, part of this additional rent is saved up on your behalf, and along with the up front deposit forms the capital you will be required to outlay in order to actually purchase the property. You are still under no obligation to buy at the end of the rental period.

The benefits to you as a buyer are:

  • You are able to move into the property that will ultimately go on to become yours, almost immediately – without having to obtain a mortgage or pay a full deposit.
  • As property values are currently depressed you are able to fix your purchase price at a favorable level, yet don’t have to obtain finance in the currently difficult mortgage market
  • You are entering into a structured agreement which obliges you to save towards your purchase, as opposed to simply spending dead money on rent.

If you would like to purchase your own property and are currently struggling to get on the ladder a lease option agreement may be for you. If you would like to find out more please leave your details and we will contact you with more information.