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RENT TO BUY for your Tenants

2015 sees the launch of our RENT TO BUY for tenants

We have brought this product to the market to give our landlords a future exit strategy while sustaining a rental income until this point.

So, what is RENT TO BUY?

RENT TO BUY is a fantastic way for your existing tenant or new tenant to eventually own the property that they are currently renting or going to rent. We have launched this product due to more and more tenants enquiring if they can purchase the property that they are in or going to rent.

What are the benefits to you the seller, of doing a RENT TO BUY?

• With a tenant buyer in place you practically eliminate voids.
• You will have a reliable tenant who has a huge incentive to pay their rent on time.
• You will benefit from a future sale of your property, at a pre-agreed price with a 1% increase per year.
 
We recommend that you analyse your portfolio and decide which properties you wish to sell within the next 5 to 10 years and offer a RENT TO BUY facility on these.

Why would your tenant want to do a RENT TO BUY?

The reasons why tenants will do our RENT TO BUY scheme is generally because they are in the following situation:
1) Can’t currently get a mortgage for whatever reason - credit issues, self-employed, work history for example.
2) Haven’t got the deposit needed for a mortgage at present.

What rent does the tenant pay under the RENT TO BUY scheme until they purchase the property?

  • An Assured Short Hold Tenancy Agreement is offered at a fixed rent for the time period of 6 months to 5 years.

Time Periods

  • Time periods are typically designed to allow the tenant the opportunity to save up for the deposit for the property if they don’t have it or if they do, the time frames are set to allow a tenant to be accepted for a mortgage.

What can happen to the deposit the tenant is saving each month?

  • The deposit the tenant is saving each month is protected and is paid into NGU Homelettings client account. There will be two payments each month; the rental amount and the “over payment” which will be the money for the tenants deposit.
  • The deposit the tenant is saving each month is protected but it does have a default clause to it. If they do not buy your property in the agreed time frame, 30% of the deposit (minimum of £2,000) is none refundable and is paid to you the seller.
  • If they default on your rent during the Rent to Buy period, this also activates the deposit default clause (any loss of rent, eviction costs and Landlord legal costs will be deducted from this overpayment).
  • In a nut shell, in the event that the Rent to Buy agreement is breached by both parties, whichever side has breached the agreement, the 30% overpayment towards the deposit will be paid to them.

Government Help to Buy ISA-an offer from the government to top up savings for a mortgage deposit.

  • Help to Buy ISA (which is applicable if a tenant is buying for the first time) is an offer from the government to top up your tenants savings for a deposit.
  • For every £1 they save, the government will give them 25p. It’ll match that up to a maximum of £200 each month or £12,000 in total. So by saving £12,000 your tenant actually has £15,000 to play with.
  • The government Help to Buy ISA scheme is a fantastic way for your tenant to achieve 25% of their mortgage deposit absolutely free. Now you can see why Rent to Buy is proving so popular and why we are expecting interest to explode in the near future!
  • Help to Buy ISA for your Tenant Buyer should be available from Autumn 2015 (ministers still need to finalise the details).
  • When Help to Buy ISA’s do become available, 70% of the mortgage deposit your tenant is  saving, the “over payment”, will be paid into this account rather than NGU Homelettings client account but the remaining 30% will still be paid into NGU Homelettings client account to protect the default clause.

How is the market value of your property decided?

  • The current market value of a property is decided in either two ways. Your Tenant Buyer can pay for an independent RICS Chartered Surveyor to value your property or our Estate Agency (NGU Homesalesonline.co.uk) will look at comparables of other similar properties on the market for sale and recently sold properties to value your property.
  • For each year of the Rent to Buy, the agreed market value will be subject to a 1% increase each year.

E.g.               Agreed current market value            £85,000

Year 1=           1% increase in value             £85,850
Year 2=           1% increase in value             £86,708.50
Year 3=           1% increase in value             £87,575.59
Year 4=           1% increase in value             £88,451.35
Year 5=           1% increase in value             £89,335.86

Maintenance

  • You are still responsible for all category 1 repairs to the property during the Rent to Buy period (health and safety issues).
  • You still need to carry out your statutory requirements such as an annual gas safety check and an energy performance certificate if needed.
  • Before the tenant moves into the property, you will also need to carry out an electrical periodic inspection to confirmthat the electrics are safe. Any points that come out of this inspection that are health and safety issues will need to be rectified.
  • Any general wear and tear to a property that is not classed as category 1 (health and safety issue) is the tenants responsibility. An example of this could be an internal door that has slightly dropped and needs shaving to close. This would be the tenant’s responsibility to rectify.

Sellers Commitments

  • The seller is committed to pay the mortgage if applicable during the RENT TO BUY period.
  • The seller is responsible for paying the building insurance during the RENT TO BUY period.

Let me give you two examples to explain -RENT TO BUY for your Tenants better:-

Example 1

  • Property Value £85,000.
  • Your new Tenant Buyer doesn’t yet have the deposit needed to buy your property. 10% deposits are generally a starting point to accrue a deposit as they are the normal lowest requirement for a residential mortgage.
  • To be able to get the deposit required to buy your property, you and the tenant buyer have agreed a 5 year Rent to Buy period.

Agreed current market value                           £85,000

Year 1=            1% increase in value               £85,850
Year 2=            1% increase in value               £86,708.50
Year 3=            1% increase in value               £87,575.59
Year 4=            1% increase in value               £88,451.35
Year 5=            1% increase in value               £89,335.86


  • Therefore on your property to purchase it in 5 years’ time, a 10% mortgage deposit for £89,335.86 would be £8,933.59. This means the tenant needs to save £1,786.71 per year, or £148.89 per month.
  • You have agreed a fixed market rent for this period of £485.00 pcm.
  • Therefore the tenant will pay £485.00 pcm for the rent and £148.89 pcm towards the required mortgage deposit.
  • After 5 years of having a reliable tenant, the tenant will be in a position to buy your property.

Example 2

  • Property Value £90,000
  • Your new Tenant Buyer has the deposit but can’t get a mortgage because they are self-employed and needs 2 years of tax returns.
  • You therefore have agreed a 2 year Rent to Buy period.
  • Agreed current market value                           £90,000
  • Year 1=              1% increase in value               £90,900
  • Year 2=              1% increase in value               £91,809
  • In 2 years’ time the Tenant Buyer is looking to buy your property via a residential mortgage that requires a 10% deposit of £9,180.90. They have the deposit now, so as security we hold 30% of the deposit in NGU Homelettings client account-£2,754.27 until the property is purchased.  
  • After 2 years have passed, the tenant now has 2 years of tax returns to give the bank and can now be accepted for a mortgage. The tenant buys your property.
  • If the tenant doesn’t buy your property after 2 years, you will receive the 30% deposit held in NGU Homelettings client account £2,754.27 because the deposit clause will have come into effect.

How much does this scheme cost to enter into for the buyer, so I know they are serious?

  • Rent to Buy administration fee:£750 plus VAT each.
  • The first month’s rent£0 (the first month is a rent free period).
  • Solicitor fees range from£400 plus VAT to £650 plus VAT

(If a Tenant Buyer decides not to use a solicitor they must sign a waiver but we strongly recommend they use one).

  • RICS Chartered Surveyor fees range from£125 plus VAT-£300 plus VAT

(If a Tenant Buyer decides not to use a surveyor they must sign a waiver but we strongly recommend they use one).            

  • Home Survey fees ranges from£200 plus VAT to £400 plus VAT

(If a Tenant Buyer decides not to instruct a surveyor they must sign a waiver but we strongly recommend they use one).

How much does this scheme cost to enter into for you the seller?

  • Rent to Buy administration fee:£750 plus VAT each.
  • The first month’s rent£0 (the first month is a rent free period).
  • Solicitor fees range from£400 plus VAT to £650 plus VAT

We can recommend solicitors to you if needed (if you decide not to use a solicitor you must sign a waiver but we strongly recommend you use one).

  • Electrical periodic inspection                              £150.00 (including VAT)
  • Annual gas certificate                                           £59.00 (including VAT)
  • We take an Estate Agency fee from you the seller once the property has completed at the end of the Rent to Buy period.

How do we find out if your tenant is interested in a RENT TO BUY?

  • If you like the idea of our RENT TO BUY for your tenants, we will approach your existing tenant at their 12 month review to see if they are interested in converting into a tenant buyer via this scheme. Or we will advertise your property to any new tenants when vacant, as a RENT TO BUY.
  • If your tenant is interested, we will ask them to fill out a RENT TO BUY fact finding form to see if they qualify.
  • We will then negotiate with you and the tenant a fixed price for the tenant to buy your property in the future.
  • NGU Homelettings will also negotiate with you and the tenant a fixed time frame for the tenant to have the “right to buy” your property.

RENT TO BUY for your tenants-a future exit strategy while sustaining a rental income:

  • Eliminate voids
  • You will have a reliable tenant who has a huge incentive to pay their rent on time.
  • A future agreed sale with a 1% increase in price per year.

We recommend that you analyse your portfolio and decide which properties you wish to sell within the next 5 to 10 years and offer a RENT TO BUY facility on these.

RENT TO BUY- Seller Information

If you would like us to approach your current tenant or new tenant about a RENT TO BUY, please fill out the form below. If you have any questions please email our RENT TO BUY team via the following email address:renttobuy@nguhomelettings.com.

 

Questions

Answers

*The sellers full name:

*Property address you are looking to sell:

*Mortgage Capital Outstanding:

*Mortgage payment per month:

*Interest Only or Repayment Mortgage:

*Fixed or Variable Mortgage:

*Term of Mortgage remaining:

*Buy to Let Mortgage or Residential:

*Current Market Value:

*Current Market Rent:

*Do you have £750 plus VAT product fee to be able to enter into the Rent to Buy agreement and do you have solicitors fees which range from £400 plus VAT to £650 plus VAT: