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I’m a First Time Buyer ... Get me on the Property Ladder! INSTALMENT PURCHASE

RENT TO BUY

DISCLAIMER: This publication is designed to provide competent and reliable information regarding the subject matter covered. However, it is provided on the understanding that 2Property (UK) Ltd is not engaged in rendering legal and or financial advice. The information contained in this publication is for general guidance only. You should seek professional and independent legal and or financial advice should you wish to act upon any of the information provided in this publication. Whilst 2Property (UK) Ltd endeavours to ensure that the information in this publication is correct, 2Property (UK) Ltd makes no representations or warranties, express or implied, about the information provided in this publication. 2Property (UK) Ltd specifically disclaim any liability that is incurred from the use or application of the contents of this publication.

Š 2012 Tenant2Owner


So ... you want to get on the property ladder? Congratulations! This special report will provide you with some vital insight on how the property market really works. We’re also going to introduce you to some simple and innovative ways to get on the property ladder without needing a mortgage, a huge deposit or taking on massive amounts of debt. If you are already renting a property then you are one step closer to getting on the property ladder. This special report is for anyone struggling to get on the property ladder and who falls into any one of the following situations:  Have been saving up to buy, but keep getting left behind because of house price inflation  Have poor credit and are unable to qualify for a mortgage and need some time to rebuild your credit rating  Have no credit history  Have recently been divorced or separated and want to make a fresh start  Have recently arrived in the UK and therefore have not built up a credit rating  Have been made bankrupt within the last 6 years  Fed up with paying dead rent money each month The ‘Homeowner’ Misconception We’re sure you’ll agree that becoming a homeowner is one the greatest achievements many adults will enjoy and homeownership can bring many benefits. However, before we go any further, we want to clear up a huge misconception: YOU ONLY OWN YOUR HOME WHEN YOU HAVE EITHER PAID 100% CASH FOR IT AT THE TIME OF PURCHASE OR WHEN YOU HAVE PAID THE REMAINING AMOUNT OWED ON THE MORTGAGE. YOU CAN HOWEVER, RECEIVE SIMILIAR BENEFITS OF OWNERSHIP WITHOUT TAKING ON ANY MORTGAGE DEBT IN YOUR NAME! It is crucial that you are aware of this and understand its implications upfront, because it will help put matters in perspective as we show you some simple and innovative ways you can get on the property ladder. You see, we are of the opinion the word ‘homeowner’, is wrongly used in everyday context. In fact, we believe it is a gross misrepresentation when you take into account the above statement and the reality behind home ownership. Many people wrongly believe that by getting a mortgage to buy a property they become a ‘homeowner’. This is a huge misconception! Unless you pay for the property with 100% cash at the time of purchase, using any other method simply gets you on the property ladder or moves you up the property ladder. Taking out a mortgage means the bank owns the property, not you! Throughout this report we will use the word ‘homeowner’, simply because that is what many people instantly think when referring to buying a property and home ownership. We however, think very differently. We like to look at everyone as a ‘home-occupier’ , whether they are renting, have used a mortgage or other alternative ways and means to get on that all important first step of the property ladder.

Tenant2Owner is a trading name of 2Property (UK) Ltd | Unit 36 | 88 – 90 Hatton Gardens | London | EC1N 8PN England 0203 286 5439 | www.Tenant2Owner.co.uk | info@Tenant2Owner.co.uk | Scotland 0131 208 6296 Registered in England and Wales Company Number 07124484

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FYI: The average age of a first time buyer is currently 37. Whilst the average age of a first time renter is ... well we couldn’t find that statistic, if you find out drop us an email at facts@tenant2owner.co.uk


Why do YOU want to get on the property ladder? Property ownership is not for everyone! Some people genuinely want and need to rent. We hope the fact you are reading this special report you are not one of those that wants to be a life-time renter. We hope you have a genuine desire to get on the property ladder and are prepared to shift your mind and maybe even your current lifestyle to make the necessary adjustments to get on that all important first rung of the property ladder which can allow you to gradually climb further up. There are a number of reasons and benefits someone would want to become a homeowner. We’re sure you have your own. However, let’s be totally honest with ourselves, the number one reason the majority of people want to become homeowners is the FINANCIAL BENEFIT!

The Indirect Investment Opportunity Have you ever wondered why it is that a bank is happy to lend money to people to buy a property, but would never lend you money to buy shares in bank or even buy shares in a FTSE 100 company? It’s simple really: Property, acquired correctly and held onto for reasonable period of time, is one of the greatest asset classes and a phenomenal way to accumulate wealth (even though it may be on paper ). This is definitely not the publication to go into asset classes, but suffice it to say, if you buy a property or have an equitable interest in a property over a long period of time you can potentially receive an excellent return on your investment. Just take a look at the Sunday Times Rich List! Every single person listed on the Sunday Times Rich List has a financial equitable interest in property, one way or the other and it forms a notable part of their vast fortunes. Let’s make this crystal clear, by simply living in a property as your home and making monthly payments, over a period of time it is possible to make money from it, but only if you have an equitable interest in that property. You will certainly never get the same financial benefit if you continue to rent. The cash (known as equity) you accumulate in your property can be used for many things. Things like paying for your children’s university education, paying for your dream wedding, that holiday of a lifetime, providing capital to start a business and {fill in your desired purchase here}. In fact, we believe that paying off the debt or balance on a property is actually an ‘indirect savings’ account. The difference being the cash in your property is in the form of equity, meaning you don’t have immediate access to it unless you sell the property or release it through equity release schemes or remortgaging. We are obviously not Financial Advisors so please seek Financial Advice with regards to your savings. The above is simply our opinion.

Mortgage Basics

Tenant2Owner is a trading name of 2Property (UK) Ltd | Unit 36 | 88 – 90 Hatton Gardens | London | EC1N 8PN England 0203 286 5439 | www.Tenant2Owner.co.uk | info@Tenant2Owner.co.uk | Scotland 0131 208 6296 Registered in England and Wales Company Number 07124484

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FYI: Equitable Interest simply means having a beneficial financial interest in a property.

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A mortgage is a loan secured against an asset, commonly that asset is a property. Mortgages have been in existence as early as 1190. In over 800 years the principles behind a mortgage have basically remained the same. You borrow money from a Lending Institution secured against the property and you pay interest on the borrowed amount over a set period of time.


There are 2 main types of mortgages in the UKi: Repayment Mortgage: is also called a ‘Capital-and-interest’ loan. You pay back both the principle amount (the amount borrowed) and the interest. Every month, your payments to the lender go towards reducing the amount you owe as well as paying the interest they charge. So each month you’re paying off a small part of your mortgage. The Pros: It’s simple and has a clear approach – you can see your loan getting smaller The Cons: In the early years your payments will be mainly interest, so if you want to repay the mortgage or move house in the early years, you’ll find that the amount you owe won’t have gone down by very much. This is because of amortisation. FYI: Amortisation is the settlement of a debt through the periodic repayment of principal and interest payments.

Interest Only Mortgage: As the name suggests, your monthly payment only pays the interest charges on your loan – you’re actually not reducing the loan itself. It is important that you arrange some other way to repay the loan at the end of the term, for example through an investment or savings plan. The Pros: Because you’re only paying off the interest, and not the loan itself, your monthly payments will be lower. The Cons: The debt is not going to go away. Throughout the life of the mortgage term, you’ll need to check your investment or savings plan is on track to repay your loan at the end of the term. If you can’t repay it at the end of the term you could lose your home. If you’re relying on a rise in the property’s value, there is no guarantee it will be enough to repay the loan.

Mortgage Features

Choosing whether you go for a Repayment or Interest Only mortgage is just one decision you need to make. The other decisions you’ll need to make will be based on the features each mortgage product has. These include but are not limited to:    

Flexible Mortgage Offset Mortgage Current Account Mortgage Cashback Mortgage

Then, you’ll also need to decide on what interest rate deal you want. These include but are not limited to: Standard Variable Rate Tracker Rate Discounted Interest Rate Fixed Interest Rate Capped Rate Collared Rate

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FYI: Mortgages can be complex things. If you want more detailed information we recommend reading the “Moneymadeclear™” guide ‘Just the facts about mortgages’. You can download a free copy from www.moneymadeclear.org.uk/pdfs/mortgages.pdf

Tenant2Owner is a trading name of 2Property (UK) Ltd | Unit 36 | 88 – 90 Hatton Gardens | London | EC1N 8PN England 0203 286 5439 | www.Tenant2Owner.co.uk | info@Tenant2Owner.co.uk | Scotland 0131 208 6296 Registered in England and Wales Company Number 07124484

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     


With all of the above to take into account, it’s no wonder many people find mortgages confusing! We’re of the opinion that mortgages are not for everyone. We believe there should be more simpler options and alternatives available to those that want to get on the property ladder but do not want to take on huge debts.

The Writings on the Wall It couldn’t last. It just wasn’t sustainable. Everyone had and still has their own opinions, from journalists, to politicians, to hairdressers, to taxi drivers to friends and family, of what went wrong and caused the ‘Credit Crunch’. Truth be told, it just wasn’t one thing that went wrong, it was a combination of many things. It is also no use blaming the Banks, after all it was individuals who chose to sign that Mortgage Agreement and commit themselves to the debt with a term of 30+ years. Individuals also need to take responsibility for their own actions. We have our own personal opinion. We believe that fundamentally there was actually nothing wrong with 100% mortgages to aspiring homeowners. Providing the homeowner could service the mortgage payments every month. This is primarily based on affordability. This is one of those many things that went wrong. Basic assessment of Income & Expenditure left much to be desired. Whilst the media focuses on the thousands of repossessions, what they conveniently fail to report is that hundreds of thousands of first time buyers who managed to get on the property ladder as a result of these 100% mortgages and benefitted greatly from them. 100% Mortgages are all but gone. The highest Loan to Values (LTV) you can now typically get is 95% and even then it comes with very tough requirements and criteria. At the time of publication, Lloyds Banking Group, whose share of the mortgage market is reportedly 24%, offers a Mortgage at 95% LTV. However the requirement is that the buyer has a “helper” who is prepared to offer another 20% of the property value (to be held in a special “Lend a Hand” savings account and on which they will earn 3.75% interest) as additional security for the mortgage. The mortgage rate would be 4.99% for 3 years with a fee of £9951. This essentially means that the bank is really actually providing a loan at 75% LTV.

Get me on the property ladder! If you are a tenant you are half way to getting on the property ladder. Mortgages and Tenancies have one simple fundamental thing in common: every month payments are made from one party to another. In the case of a mortgage, a borrower makes payments to the mortgage lender. In the case of a tenancy, a tenant makes a payment to a Landlord, who then makes their mortgage payment to the mortgage lender (if the property is subject to a mortgage). We’d like to introduce you to some simple schemes that can potentially help you get onto that all important first rung. Let’s look in depth at an Instalment Purchase and Rent to Buy. FYI: LTV is a commonly used risk assessment ratio Mortgage Companies use to determine the maximum amount they are prepared to lend against the RICS (Royal Institute of Chartered Surveyors) Valuation. For Example a Loan to Value of 90% on a property with a RICS Valuation of £100,000 will mean the Mortgage Company will only lend up to £90,000.

Instalment Purchase (Also known as an Exchange with a Delayed Completion)

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Source: http://www.lloydstsb.com/mortgages/lend_a_hand.asp?WT.ac=MLAHM0210

Tenant2Owner is a trading name of 2Property (UK) Ltd | Unit 36 | 88 – 90 Hatton Gardens | London | EC1N 8PN England 0203 286 5439 | www.Tenant2Owner.co.uk | info@Tenant2Owner.co.uk | Scotland 0131 208 6296 Registered in England and Wales Company Number 07124484

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Definition: As the name suggestions, payments are made via instalments, typically monthly. Similar to a traditional mortgage, a purchase price is agreed and interest is charged on the purchase price over the term of the instalment agreement. The typical term can be anywhere from 20 – 30 years. This is facilitated by exchanging contracts with a delayed completion.

The Pros

Flexibility

Similar to a standard tenancy agreement (AST), if you wish to move on or terminate the agreement, you simply need to give two months written notice. This flexibility also means that unlike a traditional mortgage, if the value of the property drops considerably, you can walk away from the property and start afresh without the liability of mortgage debt. You will need to have given two months written notice before vacating.

Benefit from Capital Appreciation

If the price of the property increases over the period of time you are living in the property, you benefit from the appreciation should you choose to sell on the open market or refinance. You are also permitted to add value to the property, subject to written agreement. For example you could refurbish the property, by adding a new bathroom or kitchen or replacing the carpets and painting the walls. Any added value you create to the property, you directly benefit from it 100%.

Small Down Payment Requirement

You typically need a minimum of 2% of the value of the property to get on the instalment purchase scheme. Unlike mortgages from mainstream lenders where in most instances you require a 10%+ deposit. This is an upfront saving of 8%+ of a property’s value that you do not immediately have to pay.

Repayments that reduce the instalment balance

Every monthly instalment payment you make reduces the instalment balance. At the end of the term, typically between 20 – 30 years you will own 100% of the property with no debt against it.

Time

The typical term is 20 – 30 years. This gives you substantial time to get your finances in order. In addition there is a possibility that over the medium to long term the value of the property will increase. You benefit from this increase.

Use it as a ‘Step Ladder’

There is a reason it is called the property ladder. It is often quoted that the average homeowner will move twice within 15 years. Whilst there are various reasons people move, the most common is to upgrade. An instalment purchase allows you to do just that. Providing the value of the property has increased sufficiently or your personal financial situation has improved to allow you to move up the property ladder.

Tenant2Owner is a trading name of 2Property (UK) Ltd | Unit 36 | 88 – 90 Hatton Gardens | London | EC1N 8PN England 0203 286 5439 | www.Tenant2Owner.co.uk | info@Tenant2Owner.co.uk | Scotland 0131 208 6296 Registered in England and Wales Company Number 07124484

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No Mortgage Debt!

One of the biggest benefits is that you are not taking on any mortgage debt. An instalment purchase is simply an agreed arrangement to buy a property in instalments, over a period of time at an agreed applicable interest rate. It is not a loan!


Considerations

Interest Rate

Similar to a mortgage you will have to pay interest on the instalment balance. This will range anywhere from 6% - 8%. The interest rate will likely be linked to the Bank of England Base rate, meaning if Base rates go up, your monthly payment will increase.

Title Deed Ownership

The Title Deeds are not in your name. Title of the property will be transferred to you once you have paid off the instalment balance or you choose to finance the balance through a mortgage lender. Conversely, this is very similar to a traditional mortgage. With a traditional mortgage the title is in your name, but the title deeds are held as security with your mortgage lender until you pay off the mortgage. If you default on the loan the bank will most likely move to repossess the property and sell it on the open market to recover the outstanding debt.

Decline in Value of Property

There is no guarantee that the value of your property will increase. If the value of the property falls, you could find yourself in negative equity where the instalment balance is greater than the value of the property.

Affordability

Getting on the property ladder is a major commitment and requires serious financial commitment. In the case of an instalment purchase if you failed to keep up with the instalment payments and defaulted, you could lose the right to purchase the property together with any payments you would have made. You would also be evicted.

A Working Example To give you a breakdown of how the transaction works, let’s look at the hypothetical example of a couple, we’ll call them Ben and Samantha. They both work full time and have recently found a property offering an instalment purchase scheme. Ben and Samantha have £6,000 in savings and can afford a purchase price up to £100,000. They use £2,000, as a down payment, £1,000 for the arrangement fee and another £1,000 for legal and disbursement costs. This leaves them with £2,000 in savings for contingency and moving costs. The instalment balance is therefore £98,000. The interest rate is 7.25%, meaning the monthly payments over the 30 year term, assuming that interest rates remain the same, will be £668.53. Whilst this amount is £168.53 over what they were previously paying in rent, Ben and Samantha know that they have now got their first foot on the property ladder and do not have to worry about house price inflation. If anything they will now welcome it, because this will mean that if the property increases in value over the medium to long term they will benefit from the increase in the value of the property. The combined household income Ben and Samantha require is £33,000. Ben earns £22,000 and Samantha earns £14,000 giving them a combined household income of £36,000.

Tenant2Owner is a trading name of 2Property (UK) Ltd | Unit 36 | 88 – 90 Hatton Gardens | London | EC1N 8PN England 0203 286 5439 | www.Tenant2Owner.co.uk | info@Tenant2Owner.co.uk | Scotland 0131 208 6296 Registered in England and Wales Company Number 07124484

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After 36 months they will have paid £24,067.08 towards the property versus having paid £18,000 in rent payments and still have nothing to show for it. Technically that £24,067.08 is saved in the property, as equity, as assuming the value of the property has not decreased. If it has increased they now have more than £24,067.08 equity in their property.


Figures

Summary

Repayment Amount / Purchase Price Interest rate Term of Agreement Year of 1st Payment Month of 1st Payment

£98,000.00 7.25% 30 2012 January

Annual Repayments Monthly Repayments Interest in first calendar year Interest over term Sum of all payments

£8,022.36 £668.53 £7,073.90 £142,670.80 £240,670.80

Payments in First 12 Months Year

Month

2012

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Beginning Cumulative Cumulative Payment Principal Interest Ending Balance Balance Principal Interest £98,000.00 £668.53 £76.45 £592.08 £76.45 £592.08 £97,923.55 £97,923.55 £668.53 £76.91 £591.62 £153.36 £1,183.70 £97,846.64 £97,846.64 £668.53 £77.37 £591.16 £230.73 £1,774.86 £97,769.27 £97,769.27 £668.53 £77.84 £590.69 £308.57 £2,365.55 £97,691.43 £97,691.43 £668.53 £78.31 £590.22 £386.88 £2,955.77 £97,613.12 £97,613.12 £668.53 £78.78 £589.75 £465.66 £3,545.52 £97,534.34 £97,534.34 £668.53 £79.26 £589.27 £544.92 £4,134.79 £97,455.08 £97,455.08 £668.53 £79.74 £588.79 £624.66 £4,723.58 £97,375.34 £97,375.34 £668.53 £80.22 £588.31 £704.88 £5,311.89 £97,295.12 £97,295.12 £668.53 £80.71 £587.82 £785.59 £5,899.71 £97,214.41 £97,214.41 £668.53 £81.19 £587.34 £866.78 £6,487.05 £97,133.22 £97,133.22 £668.53 £81.68 £586.85 £948.46 £7,073.90 £97,051.54

Yearly Schedule of Balances and Payments

[2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30]

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2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041

Beginning Cumulative Cumulative Ending Payment Principal Interest Balance Principal Interest Balance £97,051.54 £8,022.36 £1,020.03 £7,002.33 £1,968.49 £14,076.23 £96,031.51 £96,031.51 £8,022.36 £1,096.02 £6,926.34 £3,064.51 £21,002.57 £94,935.49 £94,935.49 £8,022.36 £1,178.18 £6,844.18 £4,242.69 £27,846.75 £93,757.31 £93,757.31 £8,022.36 £1,266.49 £6,755.87 £5,509.18 £34,602.62 £92,490.82 £92,490.82 £8,022.36 £1,361.42 £6,660.94 £6,870.60 £41,263.56 £91,129.40 £91,129.40 £8,022.36 £1,463.47 £6,558.89 £8,334.08 £47,822.44 £89,665.92 £89,665.92 £8,022.36 £1,573.17 £6,449.19 £9,907.25 £54,271.63 £88,092.75 £88,092.75 £8,022.36 £1,691.10 £6,331.26 £11,598.35 £60,602.89 £86,401.65 £86,401.65 £8,022.36 £1,817.86 £6,204.50 £13,416.21 £66,807.39 £84,583.79 £84,583.79 £8,022.36 £1,954.12 £6,068.24 £15,370.33 £72,875.63 £82,629.67 £82,629.67 £8,022.36 £2,100.60 £5,921.76 £17,470.93 £78,797.39 £80,529.07 £80,529.07 £8,022.36 £2,258.06 £5,764.30 £19,728.98 £84,561.70 £78,271.02 £78,271.02 £8,022.36 £2,427.32 £5,595.04 £22,156.30 £90,156.74 £75,843.70 £75,843.70 £8,022.36 £2,609.26 £5,413.10 £24,765.56 £95,569.84 £73,234.44 £73,234.44 £8,022.36 £2,804.85 £5,217.51 £27,570.41 £100,787.35 £70,429.59 £70,429.59 £8,022.36 £3,015.10 £5,007.26 £30,585.51 £105,794.61 £67,414.49 £67,414.49 £8,022.36 £3,241.10 £4,781.26 £33,826.61 £110,575.87 £64,173.39 £64,173.39 £8,022.36 £3,484.05 £4,538.31 £37,310.66 £115,114.18 £60,689.34 £60,689.34 £8,022.36 £3,745.21 £4,277.15 £41,055.87 £119,391.33 £56,944.13 £56,944.13 £8,022.36 £4,025.94 £3,996.42 £45,081.81 £123,387.75 £52,918.19 £52,918.19 £8,022.36 £4,327.72 £3,694.64 £49,409.54 £127,082.38 £48,590.46 £48,590.46 £8,022.36 £4,652.12 £3,370.24 £54,061.66 £130,452.62 £43,938.34 £43,938.34 £8,022.36 £5,000.84 £3,021.52 £59,062.49 £133,474.15 £38,937.51 £38,937.51 £8,022.36 £5,375.69 £2,646.67 £64,438.18 £136,120.82 £33,561.82 £33,561.82 £8,022.36 £5,778.64 £2,243.72 £70,216.82 £138,364.54 £27,783.18 £27,783.18 £8,022.36 £6,211.80 £1,810.56 £76,428.62 £140,175.10 £21,571.38 £21,571.38 £8,022.36 £6,677.42 £1,344.94 £83,106.05 £141,520.03 £14,893.95 £14,893.95 £8,022.36 £7,177.95 £844.41 £90,284.00 £142,364.44 £7,716.00 £7,716.00 £8,022.36 £7,716.00 £306.36 £98,000.00 £142,670.80 £0.00

Tenant2Owner is a trading name of 2Property (UK) Ltd | Unit 36 | 88 – 90 Hatton Gardens | London | EC1N 8PN England 0203 286 5439 | www.Tenant2Owner.co.uk | info@Tenant2Owner.co.uk | Scotland 0131 208 6296 Registered in England and Wales Company Number 07124484

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Rent to Buy (Also known as Rent to Own and Rent now, buy later) Definition: Rent to Buy gives an aspiring homeowner the opportunity to rent a property first before buying it. The typical rent to buy term is 3 years. At the end of which you will need to either buy the property or vacate the property. The purchase price is fixed from the beginning. The ‘tenant-buyer’ pays the rent plus rent credits which go towards helping them build up a bigger deposit and essentially come off the purchase price at the time of purchase.

The Pros

Savings Plan

The rent credits you pay act like a savings plan, except you are already living in the property that you will one day own. One of the biggest complaints many first time buyers make (and you may concur with this) is that they struggle to save up for the deposit. This effectively forces you to save, because saving requires discipline.

Benefit from Capital Appreciation

If the price of the property increases over the period of time you are living in the property, you benefit from the appreciation should you choose to sell on the open market or finance through a mortgage. Subject to agreement with the owner you may also be permitted to add value to the property. For example you could refurbish the property, by adding a new bathroom or kitchen or replacing the carpets and painting the walls. Any added value you create to the property, you directly benefit from it 100%.

Small Down Payment Requirement

You typically need a minimum of 2% of the value of the property to get on the rent to buy scheme. The goal is to help you build up between a 10 – 15% deposit over the 3 years that you are in the property.

Time

The typical term of a rent to buy agreement is 3 years, although some can be extended to 5 years. This gives you time to not only save up for a bigger deposit whilst living in the property, but also repair your credit rating if necessary.

Use it as a ‘Step Ladder’

There is a reason it is called the property ladder. It is often quoted that the average homeowner will move twice within 15 years. Whilst there are various reasons people move the most common is to upgrade. A rent to buy agreement allows you to do just that, providing the value of the property has increased sufficiently or your personal financial situation has improved to allow you to move up the property ladder.

Tenant2Owner is a trading name of 2Property (UK) Ltd | Unit 36 | 88 – 90 Hatton Gardens | London | EC1N 8PN England 0203 286 5439 | www.Tenant2Owner.co.uk | info@Tenant2Owner.co.uk | Scotland 0131 208 6296 Registered in England and Wales Company Number 07124484

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Try Before You Buy

A huge benefit of rent to buy is that it gives you the opportunity to try before you commit to buy. It will give you the opportunity to try out the property, your neighbours, the area, your relationship or even your mobile signal. If you like it you buy it, if you don’t like it you simply give two months notice and leave the property


Considerations

Decline in Value of Property

There is no guarantee that the value of your property will increase. If the value of the property falls significantly below your fixed purchase price, you will either have to put a larger deposit down to secure a mortgage or walk away from the property.

Title Deed Ownership

The Title Deeds are not in your name. Title of the property will be transferred to you only after you have exercised your right to buy the property. Whilst your interest is registered at Land Registry to prevent the Vendor from selling to someone else, you still do not own the property. Then again, taking into account our earlier statement, even when you transfer to a mortgage you still do not own the property until you have made your final mortgage payment.

Fixing the Purchase Price Above Market Value

The Rent to Buy Exercise price (the future price you will buy the property for) is normally fixed at above the current market value. There is a risk that within the term of the agreement, the price of the property will not have risen at all, meaning should you choose to exercise your right to purchase the property you will be paying more than the property is actually worth. Mortgage lenders will require you to put up a bigger deposit. In some instances you may be able to extend the term period.

Affordability

Getting on the property ladder is a major commitment and requires serious financial commitment. In the case of a rent to buy agreement if you fail to keep up with the payments and default, you would lose the right to purchase the property together with any payments you would have made.

A Working Example To give you a breakdown of how the transaction works, lets look at the hypothetical example of a couple, we’ll call them Joe and Amanda. They’ve been dating for 12 months and are now considering moving in together. They both work full time and have recently found a property offered on a Rent to Buy agreement. They think this will be perfect as it will give them the opportunity to test out the area and test out living together as well. Together they have £10,000 in savings and can afford a purchase price up to £150,000. They use £5,000, as a down payment, £1,500 for the Arrangement Fee and another £1,000 for legal and disbursement costs. This leaves them with £2,500 in savings for contingency and moving costs. The purchase price of the property is fixed at £150,000 with a term of 3 years. Similar properties in the area are currently selling for £140,000. Their rent payments are £750 a month and they are required to pay an additional minimum of £200 a month as rent credits, helping them build up a deposit and effectively coming of the purchase price. They can pay more than £200 if they wish and can afford.

Tenant2Owner is a trading name of 2Property (UK) Ltd | Unit 36 | 88 – 90 Hatton Gardens | London | EC1N 8PN England 0203 286 5439 | www.Tenant2Owner.co.uk | info@Tenant2Owner.co.uk | Scotland 0131 208 6296 Registered in England and Wales Company Number 07124484

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Over the 3 year term (36 months) they would have accumulated £7,200 towards the property. Including the £5,000 they put down initially, this would give them £12,200 a total contribution towards the purchase of the property of 8.13%. They will also have an opportunity to have tested the area and their relationship before committing to mortgage debt. In addition mortgages are more difficult to get out off in comparison to a rent to buy agreement, as with a mortgage you would typically have to sell


the property. You would also be subject to early redemption fees if the sale took place within a certain period, this is typically within 2 – 3 years and would be detailed when applying for the mortgage.

What’s the Next Step? Getting on the property ladder requires planning and committed action. It can typically take 3 to 6 months from you making the decision that you want to get on the property ladder to actually moving into your new home. At Tenant2Owner our mission is to provide you with the necessary assistance, encouragement and advice every step of the way. Remember though, that the final decision is always down to you. The first step is very simple, it’s an Affordability Assessment.

STEP 1: The Affordability Assessment Application How much can you really afford and are some lifestyle changes necessary? The Affordability Assessment will help us determine this. This is the first and fundamental step in the process of getting on the property ladder and you can do this with no commitment on your part. Simply visit www.tenant2owner.co.uk/FirstStep and complete the Affordability Assessment application form. Once completed, you will be redirected to the CreditExpert website to request your Credit Report. CreditExpert, from Experian, offers a 30 day free trial so this won’t cost you anything as long as you cancel before the 30 days. Simply follow the instructions to sign up and receive your Credit Report. Once you have received your credit report you need to print it to PDF or alternatively print it as normal, scan and email it to firststep@tenant2owner.co.uk.

STEP 2: The Affordability Assessment Report The Affordability Assessment Report will tell us many things. For example, it will give us an indication as to how much you can afford, whether you are over-indebted and will give us a realistic outlook as to what timescales you need before you are ready to get on the property ladder. All Affordability Assessments are reviewed by our Underwriters and not a computer. Within 72 hours of receiving your Credit Report you will be emailed the results of the assessment.

Tenant2Owner is a trading name of 2Property (UK) Ltd | Unit 36 | 88 – 90 Hatton Gardens | London | EC1N 8PN England 0203 286 5439 | www.Tenant2Owner.co.uk | info@Tenant2Owner.co.uk | Scotland 0131 208 6296 Registered in England and Wales Company Number 07124484

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The report will detail your current level of preparedness for getting on the property ladder and what next steps you should take. This is broken down into three simple phases:


Green Level = You are Ready Your finances are in order, you have at least 3% in savings of the value of the property you can afford to purchase i.e. if the purchase price of the property you can afford is £200,000, this will mean you have at least £6,000 in savings. You will also need or already have Life Insurance, and possibly Critical Cover as well. Your next step will be to start looking for potential properties as detailed in the Affordability Assessment Report.

TIMESCALE TO GET ON THE PROPERTY LADDER: 1 – 6 MONTHS

Orange Level = More Planning Required You are not quite there yet. More planning is required. You’ll possibly have a little bit of savings, typically 1 – 2% of the value of the property you can afford to purchase. Realistically this is not enough. To increase this you will need to control your outgoings more carefully and may potentially need to consolidate some of your debt. You may need to look at ways of earning some extra income either through a part-time job or starting a part-time business. The good news is if you are genuinely committed you can be on the property ladder sooner than you think. The Affordability Assessment Report will detail the next steps you need to take.

TIMESCALE TO GET ON THE PROPERTY LADDER: 3 – 12 MONTHS

Red Level = Total Change Required You need to seriously think about how committed you are about getting on the property ladder. You have no deposit and are over- indebted. The good news is it’s not impossible to get on the property ladder. You do however need to make drastic and immediate changes to make your dream of getting on the property ladder a reality. Renting is dead money and you know it. The Affordability Assessment Report will detail the next steps you need to take

Tenant2Owner is a trading name of 2Property (UK) Ltd | Unit 36 | 88 – 90 Hatton Gardens | London | EC1N 8PN England 0203 286 5439 | www.Tenant2Owner.co.uk | info@Tenant2Owner.co.uk | Scotland 0131 208 6296 Registered in England and Wales Company Number 07124484

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TIMESCALE TO GET ON THE PROPERTY LADDER: 12 – 24 MONTHS


The End of Renting for You We’ll say it again, our solutions to help first time buyers get on the property ladder are not for everyone! Getting on the property ladder requires serious commitment. Are you committed? The first exercise you should do is as follows: Multiply your monthly rent with the number of years you have been renting. Consider this, if you pay £650 a month in rent and have been renting for the past 4 years (48 months), you have paid £31,200 in rent to your Landlord(s). How does that make you feel? That is £31,200 you have no hope in ever getting back. With our Rent to Buy and Instalment Purchase scheme, you would have had every opportunity to get some of that money back if not all of that back. Renting is dead money and you know it! If you want to find out what level of preparedness you are on then simply visit the link below and complete the first step application. There is no obligation to proceed with any of our services.

www.Tenant2Owner.co.uk/FirstStep About Tenant2Owner Tenant2Owner was founded with the sole mission of increasing the number of people who are able to get on the property ladder in the UK. Many people aspire to home ownership and rightly so, however in recent years that aspiration has been met with much frustration as a result of house price inflation and the lack of sufficient funds to put towards a deposit when applying for a mortgage. The financial crisis that began in late 2007 did little to improve the situation for tenants aspiring to be homeowners. Whilst the value of properties fell, the criteria and requirements to qualify for a mortgage have become more stringent. Our solutions, which include, Rent to Buy and Instalment Purchases, offer a viable alternative to mortgages, when it comes to getting on the property ladder. Tenant2Owner is a division of 2Property (UK) Ltd a company registered in England & Wales. Company number 0712448. Registered Office Address is Unit 36, 88 – 90 Hatton Garden, London, EC1N 8PN.

Tenant2Owner is a trading name of 2Property (UK) Ltd | Unit 36 | 88 – 90 Hatton Gardens | London | EC1N 8PN England 0203 286 5439 | www.Tenant2Owner.co.uk | info@Tenant2Owner.co.uk | Scotland 0131 208 6296 Registered in England and Wales Company Number 07124484

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i The information on Mortgage Basics has been reproduced with kind permission from Moneymadeclear.org.uk the UK’s Consumer Financial Education Body (CFEB).


Appendix I - Glossary “Critical Illness Insurance / Cover”

an insurance product which pays out in the event of the holder first diagnosis of one of several contractually specified critical illnesses or events

“Credit Check”

assessment of your income and financial status, against the information held by one of the three major credit reference agencies; Experian, Equifax and Call Credit

“Equity”

the difference between the market value of a property and the claims held against it

“Homeowner”

a person(s) who own(s) their home. Their ownership is registered at Land Registry (England & Wales), Registers of Scotland (Scotland), Land and Property Services (Northern Ireland). Bear in mind though, that you can only own your home once you have paid all debts secured against the property

“House Price Inflation”

the measure of residential house price increase over a period of time in relation to the current cost of living

“Landlord”

an owner of property or land who leases (rents) it to others an insurance product which pays out to named beneficiaries in the event the insured person dies

“Lease Option”

the legal terminology abbreviated for a ‘Lease with an option to purchase’

“Loan-to-Value”

also known as the LTV, ratio expresses the amount of a mortgage as a percentage of the total RICS valuation of the property

“Mortgage”

a special form of secured loan where the purpose of the loan must be specified to the lender, to purchase assets that must be fixed (not movable) property such as a house or piece of farm land

“Mortgage Broker”

a firm or individual who, for a commission, matches borrowers and lenders

“Option Fee”

an amount of money paid by a tenant-buyer to a seller for the privilege of obtaining an option period and having a fixed purchase price (Strike Price) on a property. If the tenant-buyer does not go through with the purchase, the option fee is forfeited

“Option Term”

the length in period the Lease Option Agreement is for, it is typically anywhere from 3 – 5 years on average, however it is not uncommon to have a Lease Option Agreement for 7 years

“Optional Monthly Contributions”

if agreed at negotiation, this is the additional payment that is made over and above the rent and is deducted from the final purchase along with the Option Fee if the option is exercised. This is sometimes known as rent credits or superior rent.

“Rent-to-Buy”

commonly used informal term which means the same as ‘rent to own’

“Strike Price”

the future purchase price the two parties agree the property will be bought for if the option is exercised

“Tenant”

an individual or company that rents a property or land from a Landlord

“Tenant-buyer”

an individual or company that initially rents a property from a Landlord, but whose main aim is to purchase the property in the near future

“Tenant Contents Insurance”

an insurance product that a tenant takes out to cover his or her belongings whilst they are renting a property

Tenant2Owner is a trading name of 2Property (UK) Ltd | Unit 36 | 88 – 90 Hatton Gardens | London | EC1N 8PN England 0203 286 5439 | www.Tenant2Owner.co.uk | info@Tenant2Owner.co.uk | Scotland 0131 208 6296 Registered in England and Wales Company Number 07124484

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“Life Insurance”


Get on the Property Ladder without a Mortgage