Rent-to-buy schemes
Builders are dreaming up more and more ways to sell houses and now some developers in Ireland are getting involved in 'rent to buy' schemes. So how does it work and is there a downside?
What are rent-to-buy schemes?
They essentially allow you to try before you buy. They give you the option to buy the house you are already living in on an agreed date which can be any time from six months up to three years. Rent has traditionally been seen as dead money and these schemes allow you to put some of that money towards saving up a deposit for your future house.
So is there a catch?
You generally pay a deposit — say between €3,000 and €5,000 or perhaps two per cent of the purchase price. This is not usually refundable. You generally pay over and above market rents and not all of the money you pay goes towards your eventual deposit. You have no idea of what credit criteria will be at that time; it has changed so vastly in the last six months alone who can say with any accuracy what will happen further down the line?
The schemes that seem to be available via this system are a way of getting a transaction on a property that otherwise probably wouldn’t shift in the current climate. If a property is marketable and priced right it will sell in the traditional manner, so there is usually some kind of issue, be it location, occupancy, or otherwise that leads to the rent to buy proposition.
The main advantage of buying today is that you can get a long term fixed rate for a really cheap price, people make a mistake in the ‘cost’ of property by only looking at the price, but if you plan to use finance to complete the sale then it is vital that you consider this, and if you buy an average home for €15,000 less but with an interest rate that is (for instance ) three per cent more, then you really lose out over the life of the loan.
Hilary Foley is an independent financial advisor with Lifestyle Mortgages. She can be contacted at (091 ) 762000, LoCall 1890 441 441, or e-mail [email protected]
