Rent To Buy House Purchase Schemes

In today’s market, with house prices continuing to fall and no obvious end in sight, many potential house buyers are in a position of having to rent a house or apartment and then waiting until they believe that the time is right to make an offer.

Although rental prices are also declining, from the tenants point of view, paying rent each month is still wasted money. In a "normal" housing market, tenants could be using that money to pay off a mortgage and eventually own their own homes.

Around the country at the moment, you will see signs put up by house developers, advertising "rent to buy" schemes for newly built houses and apartments.

If you are attracted to the property on offer under the rent to buy scheme, the idea behind it is as follows:

You can rent out the house or apartment, paying a deposit as with any other rental and agreeing a monthly rent. You agree a purchase price with the developer at the start of the renting period, and after an agreed time has elapsed, usually two or three years, you have the option to buy the property at the agreed price, and the total rental amount you have paid is deducted from the purchase price.

After the rental period is over, if you don't want to buy, you treat the rental like any other rental, having your deposit returned to you, (provided you kept the house in the condition you found it, of course) and you are free to look for another house or apartment to rent.

The details of how exactly each individual rent to buy plan operate differs, depending on the property development company that is offering it.

Buyers need to check what fraction of the total rent that they have paid after say, three years, will be deducted from the purchase price of the property. Another obvious question is of course, the amount of the purchase price. If house prices continue their current downward slide, it's difficult for both sides to agree a true value for the property.

Another point to consider under this scheme is the amount of rent payable. With rents also reducing in the current market, will the tenant/purchaser be committed to paying more than the rent that they would pay elsewhere? Also, how long is the rental period, as many people will find a three year leasing agreement too restrictive.

There is of course, no reason not to broach the subject of rent to buy with the developer if it is not on offer on a property that you are interested in, as long as you can obtain favourable terms.

However, unless property developers can demonstrate to potential buyers that they will be flexible about both monthly rents and purchase price, it's difficult to see how these schemes will result in a significant amount of new property sales.