Government’s Help-to-Buy Scheme
What Is A Tenant-Buyer?
A Tenant-Buyer is a future buyer who has the choice to purchase a property at an already agreed price within a decided timescale. During the tenancy, the future buyer will have almost all the benefits of any conventional homeowner without necessarily having to qualify for a mortgage to start. The Tenant-Buyer will move into the house right after the agreement and live there as a tenant before actually completing the purchase. In the meantime, you will be free to treat the home as your own, decorating to your own taste – with written permission only required for structural changes to the property.
What is the Tenant-Buyer Scheme?
This is an agreement to lease out a residential property for a certain period and keep the possibility of purchasing it before the tenancy contract is over. Most importantly, the purchase price is fixed so you don’t need to worry about a rising property market. This scheme has been formulated keeping in mind the hardships and challenges faced by first- time buyers.
Who Can Benefit From the Tenant-Buyer Scheme?
How Does the Tenant-Buyer Scheme Work?
The Tenant-Buyer Scheme is remarkably simple. It allows a person to rent a residential property initially whilst saving for the deposit to purchase/mortgage the home at a pre-agreed date in the future.
When we are approached about the Tenant-Buyer Scheme, we try to find out more about your situation and understand your specific requirements rather than a one-size-fits-all solution. We want to be transparent and will take the time to answer any questions, walking you through the entire process step-by-step.
When a property matching your criteria is found, we book a slot to view the property and charge a small holding fee to secure it. We proceed to carry out credit checks, referencing and affordability upon your express permission. This will include a review with a mortgage broker, to ensure you will be mortgageable by the end of the tenancy term. From the completion of paperwork to handing over the keys, we make the entire process smooth and hassle-free.
The tenant will pay their first month’s rent and a non-refundable initial fee called “Option-to-Purchase” and happily move into their new home. The Option-to-Purchase counts towards the deposit and is around 3-5% of the agreed purchase price. The tenant will keep paying monthly rent along with an extra ‘top-up’ fee (This accumulates to make up the 10% deposit) during the entire duration of the contract. This removes the temptation to dip into your savings pot and also ensures you’re in a position to complete the purchase by the end of the tenancy.
When we are 6 months short of completion of the tenancy agreement, we will formally contact the Tenant-Buyer and will take in writing their willingness to complete the property purchase. The accumulated ‘top-up’ fee will become the deposit (usually 10% of purchase price) and a 90% mortgage will be applied for through a mortgage broker.
The Tenant-Buyer Scheme is not only advantageous for buyers but also sellers. The seller of such property is guaranteed a steady income, without the headache of having to manage a tenant. Tenant-Buyers have the mindset of a property owner and are less likely to damage something they intend to own. Because they are responsible for upkeep of the property and are free to make cosmetic changes, they usually end up improving the property over time. This is also attractive to those who want to sell but have very little or negative equity.
One important thing to note here is that the seller cannot back out of the contract and is bound to sell at the agreed price. While as a Tenant-Buyer, you can back out at the cost of the top-up fees and initial 3-5% deposit, since both are non-refundable and are bound to forfeit in case of failure to complete the purchase by the end of the tenant contract.
This might sound scary, but the intention is to protect all parties involved. We protect the seller by ensuring the mortgage can be paid and by getting a highly qualified Tenant-Buyer in place that can complete the purchase. We protect the Tenant-Buyer by ensuring the price is locked in and only they can complete the purchase of their home. As a final note, anyone thinking to opt for this Tenant-Buyer Scheme should review their financial situation and is recommended to seek independent financial advice – we want you to be confident that this is right for you.
