RENT-TO-OWN FREQUENTLY ASKED QUESTIONS
Welcome to Creative Selling and Buying!
Rent-to-buy, means that you can rent a property either new or second hand with an option to buy it within a given deadline of normally 2 to 5 years. The sale price is usually fixed beforehand as part of the original agreement and the amount given in rent is generally deducted from the final price.
THERE IS A DEPOSIT REQUIRED
Advantages for the seller:
There are benefits in having someone who is ultimately interested in buying the property as the tenant. With the best will in the world, tenants do not always take care of the properties they rent. Someone with a vested interest in it is more likely to maintain it well and keep up with payments.
In the current market offering this option is likely to attract more interest as possible purchasers can dip their toe in before taking the plunge. However, be aware that if house prices continue to fall you could find that your prospective purchaser decides to opt out and secure something cheaper.
Advantages for the buyer:
As the potential buyer of the property you are more likely to feel that it is worthwhile investing your time and energy in settling in, getting to know the neighbourhood and really being a part of the community. At the same time you are establishing whether this is the place for you or not.
When looking on rent-to-buy websites just be aware that there are a number of variations in exactly how it works. Some arrangements take on the form of the ‘tenant’ paying a ‘mortgage’ to the landlord. The buyer/ renter pays a substantial deposit and then pays a monthly payment in a similar way to a mortgage payment.
In other cases the arrangement simply takes the form of a deferred sale. A sales contract is drawn up with an extended period for completion of say 12 months or more. It includes a fixed sales price, a completion date, a deposit and monthly rental payment. This rental payment will be higher than normal.
When the completion date arrives all the payments that have been made are deducted from the agreed sale price and the balance is paid as usual with the sale completed at the Spanish Notary.
Points to consider:
- Just because you are renting and there is a longer period of time during which you can raise your Spanish mortgage – don’t get carried away with the size or value of the property you have in mind – it will still need paying for in the long run.
- Be absolutely sure about the terms and conditions of the arrangements.
- Make sure you are clear about what happens if you should change your mind.
- Do keep in mind that you will have an agreed sale price that will hold over the period of the let but that mortgage interest rates, currency exchange rates (if your income comes from abroad) and even house prices are imponderables over that period of time. You might find the economic environment less favourable when it comes to buy than when you first moved in.
- An additional deposit might be required by the seller as well as the usual deposit requested when renting a property in Spain. This is in order to demonstrate the real commitment of the purchaser.
- Over a long-term arrangement you are vulnerable to the financial viability of the landlord. For example, if the landlord has a mortgage and is not able to meet the payment, the property might be repossessed. This may not affect your right to let but would remove the right to buy.
- From the seller’s point of view, once the contract is entered into then it must be followed through even if a cash buyer suddenly emerged, anxious to buy the property.
Why would anyone want to sell in this way?
Perhaps you want to move on but cannot sell and feel stuck, this will facilitate a move.
With a payment plan it’s your chance to get what you paid for it or more, ok you have to wait longer to get paid but it’s worth the wait.
Also if the property is in negative equity these payment plans are ideal.
What if I have a mortgage on my property?
Is this Legal?
How am I protected as the seller?
What happens if the buyer fails to me ?
You will of course have to go through the appropriate channels to claim the property back but any payments received to that point are yours to keep.
Responsibilities buyer and seller?
Buyer: To pay the seller the agreed monthly payments until paid off
To maintain the property and carry out repairs when needed
To pay any charges associated with the property.
Seller: To let the buyer enjoy the property including letting the property out.
Seller must not secure any loans of any kind against the property or try and sell the property during the payment term unless the buyer agrees a deal to do so.
Why have I not heard of this type of transaction before?
The downside to this is that buyers can take their pick of property as there is more property out there for sale than buyers. (simple supply and demand) with payment plans you get full value, in some cases more!
What happens if I change my mind?
What do buyers usually do with the property?
How long does it take to complete the legal side of things?
Can the buyer pay the balance before the term is up? Or make over payments to pay off sooner?
What is the benefit of a long payment term?
Why should I consider selling on a payment plan after all house prices double every 7-10 years!?
It’s all about supply and demand.
Spain is complex country but the overall trend is that the oversupply means there’s a shortage of buyers and lack of demand, in order to help people who need to sell in this market we use payment plans, no banks, no finance, no problem!
Making things Win/Win
You must be honest and disclose full information to the solicitors regarding your property, you must not hide anything such as condition of property etc… you will be liable if you misuse any monthly installments i.e not pay mortgages or loans and may face prosecution. You must communicate fully with the buyer as and when required
What safeguards are put in place to protect me as the buyer?
What’s to stop the seller mis-spending your money and not paying the mortgage you may well ask?
1. Regular mortgage statements showing they are paying the mortgage every month which you must request for the seller
2. Deeds are kept in the current owners name until paid for in full this is to protect the seller, You will have a legally binding contract with the seller stating the terms clearly.
3. You may also further protect your position as the buyer by lodging the contracts at land registry which can be costly and you need to decide with the solicitor if this is viable.
4. Many of our properties do not have mortgages
Can I make overpayments or do I have to pay a set amount?
Can I let the property out?
Do I pay the bills?
What if I don’t want the property anymore?
You can give notice and walk away (not advised as you lose any money up to that point), or you can outright sell through an estate agent.
If values rise in the future can I sell on for more than my set purchase price?
What are the risks involved with these?
The seller needs to be in good financial standing as if they go bankrupt it may affect the property (you can credit check sellers at your own request and cost)
You are responsible for the property and any tenants so there is a potential risk
If the seller die’s you will need to cover this aspect with the solicitor to see if you can put a power of attorney in place to cover this.
These property deals do have some risk attached to them so make sure you speak to your solicitor before you proceed. We will not be held responsible in any way for losses now nor in the future.