Realmark North Coastal Property Manager Teagan Munro said, although they were not common in Australia, rent-to-buy or rent-to-own models were aimed at those who wanted to buy a home but had been unable to save a deposit.
“The idea is that these schemes make it easier for aspiring property owners to get onto the property ladder by eliminating the need to save a traditional deposit and by delaying the need to secure finance from a bank or lending institution,” she said.
According to Ms Munro, a rent-to-buy scheme has a lease agreement that affords the renter/ buyer the right to buy a home at the end of the predetermined period – usually between two to seven years – at a price agreed to prior to signing the agreement.
“The buyer pays a higher-than-usual weekly rent that covers all the costs of the home, and a large proportion of the rent goes towards a stake in the property,” she said.
“Over the course of the rental period, the total money paid out for this option to buy is then usually deducted from the final sale price.”
Ms Munro said it was important to not only consider the benefits, but also the potential risks such as whether you would be able to pay higher costs over the agreed period, whether there was a money-back guarantee if you decided not to proceed with buying the property and whether you had exhausted all other home loan options.
“The major downside to rent-to-own schemes is that participants don’t own any part of the home until they’ve made the final payment,” Ms Munro said.
“You also need to apply for a home loan when the time comes to buy the property at the end of the rental agreement.
“You’re not on the title so, if you are unable to make a payment, you could lose whatever equity you have built up, which would result in the termination of the contract, leaving you out of pocket and without a home.”
Ms Munro said not only could a rent-to-buy scheme be a big risk for the buyer, it could also be a big risk for the seller.
“The seller is effectively locked into an extended settlement period during which the property may increase in value,” she said.
“This is a positive for the buyer as, by setting the future sale price, the buyer is protected from any house price rises.
“However, this can also work against the buyer if the market experiences a downturn during their rental period.”
Ms Munro suggested seeking legal advice in regards to a rent-to-buy agreement.
ARTICLE BY: The West Australian HOLLY COOMEY