A rent-to-own scheme is a contract between the owner who may eventually sell to the renter (that is the idea). The renter lives in the property, paying rent plus an additional premium as a top-up against the future purchase price. The contract between the renter and the owner/seller will specify the future price. The renter gets certainty that they will be the buyer at some point in the future at a price that is fixed to them. The owner/seller has a future buyer for his property, regardless of market conditions.
There are disadvantaged and drawbacks to these deals.
1. Losing your investment: There is little protection for renters who fall behind with payments. If you fall behind and are evicted, you lose any up-front fees and rent premiums you paid.
2. Cannot secure a loan: If you find there is no loan, mortgage or financing available to you at the end of the specified rental period, the cash invested is forfeited-in other words the renter loses their money. That cash would have come off the purchase price but now it is lost because there is no purchase.
3. Falling home prices: Renters may be hesitant to lock into a set price a year in advance considering how much home values change. If the comparable are significantly more attractive when it is time for the contract to end there may be some room to re-negotiate, but this is very much at the seller's discretion.
4. Repossessed owner: The irony here is that the renter is renting in order to save up funds for a deposit but he/she has no control over the state of the owner's finances. The owners could be going through repossession proceedings themselves, and if repossessed, the rent-to-own contract becomes void.
The mortgage lender's statutory power of sale is relevant here. In a properly drawn contract the lender's power ทาวน์เฮ้าส์มือสอง ราคาถูก of sale will affect the renter as well. If the con- tract is poorly drawn then there is a possibility that the renter may have an overriding interest in the property. There may even be a clause in the mortgage offer against this type arrangement.
In the United States, renters are served with an eviction notice. In the United Kingdom, this is not the case. If the renters are not subject to the mortgage, the renters' interest overrides. It remains to be seen if this overriding interest can be over-reached by the lender. It is all very new and case-law and legislation are lagging behind in these matters. The law will evolve organically over time.
5. The owner loses out: Pitfalls exist for sellers as well.Renters may decide to not exercise their purchase option if prices fall. That can leave the owner with large potential losses by the end of the agreement compared to a straight sale at the beginning. They are also stuck carrying the costs of the property until they find other buyers or tenants.
6. Affordability: The whole deal works on renters, owners and sellers living in world where interest rates, property prices and taxes are static. What may be affordable now for the seller or owner may not be in the future. Likewise, the renter relies on static costs that otherwise might not be manageable.
Rising interest rates are traditionally the benefactor of good economic recovery. However, they could also be a bridge too far for some property owners.
On the other hand, higher interest rates may start moving prices down again and the property may become less and less attractive to the renter.
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