An Easier Way To Take The Initial Step Onto The Property Ladder by: Oliver Darraugh

These days, many people trying to take their initial step onto the property ladder, find their way handicapped by the need to first obtain a large deposit. Whilst they try to save up for this deposit, property prices rise, and the amount of the deposit required consequently increases also. Although it may seem as if first time homebuyers are chasing an unattainable dream, there is a solution in the form of rent to buy.

Rent to buy schemes are becoming a more popular method for first time homebuyers to affordably move into a property that they can call their own. Although ownership of the property is not immediately transferred to the homebuyers, an option to buy is included in a revised tenancy agreement, with a fixed price determined on the value of the property and a time scale set in which the homebuyers have the right to exercise their option.

Between moving into the property and formally purchasing it, the homebuyers pay an agreed amount of rent part of which is credited against the full house purchase price, so that when the time comes for the option to buy to be exercised, the deposit required is substantially lower. The rent to buy system allows for potential homebuyers to live in a property whilst saving the balance of the deposit to facilitate the outright purchase and during this time can make any improvements or alterations to the house that will increase its value. With the purchase price already having been fixed, any increase in value will be to the future benefit of the homeowners when they take full possession.

When it comes to getting a mortgage to purchase the property, there are several significant benefits to first time homebuyers purchasing under a rent to buy scheme.

As the final purchase price of the property has been fixed some years in advance, the value of the property may well have risen through normal house price inflation. This will mean that the percentage of mortgage required in relation to the current value of the property will be less. Any equity in the property created by house price inflation is also to the benefit of the homebuyer.

Furthermore, when a lending institution looks at a mortgage application from a homebuyer who has already spent several years in the property, and has a record of maintaining regular rental payments against it, this will influence them positively when it comes to granting the loan. Any improvements made to the property during the tenancy period will also be a positive factor.

So, the benefits of purchasing a first home through a rent to buy scheme can be summarised thus:-

* Time to save for a smaller deposit on a fixed price property.

* The potential for equity growth in the property.

* Smoother facilitation of the mortgage process.

* An easier way to take the initial step onto the property ladder.