10 February 2009
Chris Norris is product manager for NLA Rentback
NOTWITHSTANDING the fact that the UK property market is in the doldrums, a range of opportunities exists for people to either continue to invest in the rental property market in some shape or form or to at least climb on the property ladder, so beloved of the British population.
Drawn by below market-value prices and the growing number of properties being repossessed, some property investors are looking to increase their portfolio with the added benefit of purchasing assets with ready made tenants.
Such people, facing difficulty meeting mortgage commitments, are selling their home for up to 80 per cent of its value to landlords and then staying on as tenants, but with absolutely no guarantee that they can stay long term.
The practice, known as 'sale and rent back' is growing in popularity at a time when many people cannot afford mortgage payments, coupled with the options for remortgaging being severely restricted. It has also attracted its share of negative publicity ensuing in an investigation by the Office of Fair Trading that found no grounds to ban the concept.
Chris Norris, product manager for NLA Rentback, part of the National Landlords Association said: "Homeowners entering into this kind of arrangement need to carefully weigh all up of their options, but it does offer a suitable alternative to repossession."
Some critics of the scheme find it wrong that property investors are able to buy property at a discount simply because the seller is desperate to avoid repossession and its associated stigma, but there are those that counter that sale and rent back properties are often only viable for landlords as the reduced price paid means that rental payments will cover mortgage payments.
This is one area where the Mortgage Rescue Network (MRN) warns potential investors to be wary of ensuring that mortgage payments can be met because if not, tenants risk losing their home for a second time with no recourse available to them.
Phil Martin, a director of MRN, said: "At the end of the day, the agreement put in place by landlords and their tenants constitute business dealings but while the landlord is in it for a profit, they should take the tenant's financial situation into account when setting rental payments."
Another option that is growing in popularity for those desperate to either stay or get on the housing ladder is one which interestingly, for once, is of obvious benefit to both seller and purchaser.
Faced with a declining pool of people who cannot afford to buy or who cannot immediately secure finance, some house builders are offering the opportunity whereby properties can be rented before deciding whether to buy.
The concept has been welcomed by Norris who said: "Rental options deliver choice, flexibility and best of all affordability that millions need and with this kind of arrangement in place people have decent places to live in while deciding what the future holds as well as house builders standing a much stronger chance of selling properties otherwise left standing empty."
The 'rent first, buy later' scheme is heading a series of measures which the government hopes will breathe new life into the housing market and essentially works by allowing tenants to rent a property at 80 per cent of the market value for a fixed period of up to three years, during which time they can save for a deposit.
The project is open to those with household earnings under £60,000 per annum and is aimed primarily at first-time buyers who the whole housing market is hugely dependent on.
Although the scheme is designed to encourage and assist people to invest in property, critics see it as another route to people overstretching themselves when it comes to taking on a mortgage.
Norris said: "People will still need to be highly regimented in how they save money because lending institutions will still require large deposits while there is also the issue of not knowing what the mortgage market will be like in three years time when the fixed rental period is up."
Another element to bear in mind for aspiring property owners is the fact that after their rental period expires and they elect not to purchase the property they have been living in, landlords are under no obligation whatsoever to renew tenancy agreements.
There appears to be no ideal scenario to solving the current housing crisis but as Norris commented: "The country's band of property owners and investors appear to be the winners at the moment because not only are bargains to be had in what is a buyer's market but demand in the rental sector is high driven by those needing homes but who cannot afford to buy one."
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