Q My girlfriend and I are interested in participating in a rent-to-buy scheme in Dublin as we feel they are a good way to see if you like a place and you can wait and see what happens to property prices. Are they any good and what are the benefits/pitfalls?
A Many first-time buyers find it very difficult to save for a deposit towards a property purchase while paying rent. This is particularly so in Dublin where rents are highest. About three years ago, as a response to falling house sales, many developers and their agents came up with the “Rent-to-Buy” initiative to give people an alternative route to buying a home. Effectively the potential buyer agrees to rent a new built property over a specific period; normally two to three years. At the end of that period, or at any time during the leasing period, the tenant can exercise an option to buy the property and any rent they have paid since the start of the lease is put down as part payment of the deposit. So the rent equates to saving towards the deposit and gives the tenant a roof over their heads while they are saving.
Normally a price and monthly rent is agreed at the beginning but in reality, with falling property prices, the initial agreed price is rarely paid. Buyers try to renegotiate the price if and when they actually decide to buy.
Importantly there is no legal obligation for the tenant to buy the property but there is a legal obligation on the vendor to sell it to you if you wish to buy it.
On the face of it, it appears to be a win-win situation. The scheme has been running now on various new-home developments both in Dublin and across the country.
There is no hard evidence in terms of how successful it has been and so it is impossible to be fully objective on its success.
Anecdotally I feel that it has only enjoyed moderate success. Ultimately the poor market and difficulty in securing mortgage finance has meant that many first-time buyers simply cannot purchase. Others are perhaps deferring the purchase until they feel values may have bottomed out.
In summary, there are many positives to the scheme for buyers. Your rent is collected as a deposit, you can live in the development and experience what it is like to live in the area and own a property and you are under no obligation to buy.
The downside is that you may have to pay some form of booking deposit from the outset and if you did not proceed with the purchase you would lose this.
Second, the agreed monthly rent could be higher than the market rent for a similar property.
So my advice is that you should think long and hard about the property you are buying in terms of the area, proximity to work, transport links, essential amenities and whether the property is likely to meet your medium- to long-term needs before agreeing to such a purchase.
Gerard O’Toole - chartered surveyor