While first time buyers may have the disposable income to afford mortgage payments, mounting difficulties are facing buyers in securing finance from lenders with some financial institutions looking for up to €60,000 deposit on mortgages, making it near on impossible to get on the property ladder for the first time. Regardless of how much developers slash house prices on their new developments to attract buyers, the simple fact is that without the financial backing of their banks, a lot of first time buyers simply can’t save deposits while renting. Some light at the end of the tunnel appears with the increase in popularity of a ‘Rent to Buy’ scheme for some new developments countrywide.
Currently this scheme varies depending on the developer in question but in essence it is designed so that buyers can live in their dream home paying rent which ultimately contributes towards a deposit, enabling them to buy at a pre-agreed price after an agreed period of between 1 to 5 years. Effectively, this way, the rent paid becomes a valuable deposit. Developers taking part in this scheme are offering between 50% to 100% back to buyers at the end of the agreed period, enabling them to purchase their home.
With upwards of 50,000 completed new homes nationwide, this scheme appears to be restoring some confidence to first time buyers and to the residential market in general. It removes any uncertainty and fears buyers might have in the current market, and gets over the hurdle where many buyers simple can’t raise a deposit while paying ‘dead money’ for regular rental accommodation.
Ultimately the buyer gets to purchase their own home in a very difficult environment without saving for a deposit, and the developer gets his asset producing cashflow and moves a step closer to a sale.
Unlike mortgages or financial products, Rent to Buy schemes are not regulated and there are no steadfast rules surrounding how they work, each one is different. However, with terms and conditions firmly in place between buyer, developer and their respective solicitors it certainly appears to be a very effective solution to filling some of the countries new housing developments with buyers eager and ready to move!
Ciprian Popescu on Monday, March 9, 2009 in Mortgages, Rent to buy