Try before you buy, rent-to-buy plans

Try before you buy rent-to-buy plans can ease the way to ownership, says Diana Clement.

RENTALS

Rent to buy. We've all seen signs dotting suburbia offering tenants the opportunity to buy property. The deals, offered by individual property traders, appeal to tenants who want to buy their own home but may not qualify for mortgages because of poor credit records or other problems.

How it works is that instead of putting a deposit down, you pay a sum of money, often in the thousands of dollars, for a lease that includes an "option to buy" the property. In the meantime you pay rent to the landlord, which may include an extra sum of money each week, which is put towards your deposit. At the end of the lease period you take the deposit, apply for a mortgage through a regular lender and settle on the property.

These schemes sound desirable for tenants/buyers, but the contracts are often skewed towards the landlord. "If tenants struggle to come up with a deposit for a house or get a mortgage with a bank, then a rent-to-buy transaction may be more affordable and managable way to achieve home ownership," says Department of Building and Housing (DBH) client services manager, Jeff Montgomery. But he adds tenants need to be aware of what they are getting in to.

The DBH has come across rent-to-buy cases where a tenant has fallen behind with rent payments and the landlord has lodged an application to the Tenancy Tribunal seeking an order for payment of rent arrears, or an order for termination of the tenancy_ending the tenant's dream of buying that property.

Tips from the DBH for tenants considering rent to buy include:

Make sure you can afford to maintain the level of repayments for the duration of the agreement, keeping in mind possible changes in circumstances and your financial situation.
Check that the deal you have is not just a tenancy agreement.
Find out what happens to your deposit and whether you get any rent money back if your loan application is delined.
If you have already entered into a scheme and have been told that you do own the home, check with Land Information New Zealand (LINZ) to see that your name is on the property.

The Ministry of Consumer Affairs recommends tenants always get the contracts checked out by their own lawyer before signing. If not, you leave yourself vulnerable should there be problems or a default in payment. Finally, rent-to-buy tenants are protected by the Credit contracts and consumer Finance (CCCF) Act.

Try before you buy, rent-to-buy plans

Try before you buy rent-to-buy plans can ease the way to ownership, says Diana Clement.

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