The concept of trying before you buy is very simple.You will need assistance from specialised companies who can put you in touch with the right solicitors to help your sign a tenancy agreement (or leaseagreement) and especially an option agreement (your right to buy).

The same specialist companies will help you find landlord-sellers in your selected area. Landlord sellers are property owners who are happy to rent their property to you until you can buy. In this type of transaction you are considered a tenant-buyer. You rent the property first and eventually you buy it because you signed an agreement to buy (the option).

We have vetted several property agent companies who specialise rent to buy or rent to own transactions.

All you need is the desire to own a house in an area that you like.

Visit http://www.ukpropertyladder.com/tenant-buyers

So get in touch today!

To get a loan, mortgage, credit card, contract mobile phone or even monthly car insurance, lenders score you to predict your likely behaviour. Scoring systems are never published and differ from lender to lender and product to product. This means just because one company rejects you, it doesn’t automatically mean another will. 

Credit scoring doesn’t just dictate what products you’ll receive. Most personal loan rates are ‘typical’, as the actual amount you’ll pay varies greatly with your credit score. With credit cards you may get an entirely different product to the one applied for, if your score’s too low for the product you wanted.

Two big myths need clearing up

• Credit ratings and credit blacklists don’t exist. There is no universal credit rating; no one-off judgment of your creditworthiness, nor is there a blacklist. It might not feel like that though as, while each lender scores differently, the information is similar, so a bad risk for one lender is often a bad risk for others too.

·     Lenders aren’t obliged to dole out credit.  Applications are aggregated into millions, and banks prefer to deny a few good quality applicants rather than overspend on personalised vetting procedures or accepting large numbers of unprofitable customers.

One of the biggest secrets of the financial industry is that credit scoring isn’t about the risk you poise to the lender, it’s firstly about their ability to make a profit from lending to you. Even if you’re a good risk you can be rejected simply because you won’t generate enough of a profit for the lender!

Of course risk plays a part, as those unlikely to repay are an immediate threat to profits. Yet rejection may happen to even the most solvent if they’re unlikely to act in a way that will make a profit for lenders. Haven’t you heard about friends with enough income but we are struggling to consolidate their debt because the banks don’t want to lend?

The sooner we understand banks are there to make money, not help us, the better we can play the system.

Ok, now let’s assumed you’ve passed the credit scoring hurdle. The next hurdle is that the banks want to know other information about you. Are you prepared?bout you

 Other things the banks like to know about you

There are three prime sources of information used for scores.

·         The application form. Here lenders obtain the crucial details of your salary, family size, reason for the loan and whether you’re a home owner. You have to give them honest information otherwise you could be rejected or even prosecuted.

·         Past dealings with the company. Companies use any previous dealings with you to help assess your behaviour, though in theory complicated data protection rules can limit which separate units of a company can communicate to each other.

·         Credit reference agency files. The three credit reference agencies Equifax, Experian and Callcredit compile information, allowing them to send data on any UK individual to prospective lenders. All lenders use at least one agency when assessing your file. The agency data comes from:

o    Electoral roll information. This is publicly available and contains address and who lives with whom details.

o    Court Records. County Court Judgements (CCJs) and Bankruptcies indicate if you have a history of debt problems.

o    Financial Data. Banks, building societies and other financial organisations compile details of all your payments and transactions. Around 350 million records a month are tracked including ‘black data’ which are details of any defaults, late payments or problems and ‘white data’ which incorporates how you generally operate the account. ‘Black data’ has always been shared by financial companies but until last year ‘white data’ was only provided by some. Now all share the information, where they have customer consent, meaning that each now has access to all data about you from other organisations.

Don’t you think that there are too many hurdles for homeownership? Don’t you think that banks make too much profit out of customers? Don’t count on the government since they are incapable of providing enough affordable homes  or resolve the housing shortage in United Kingdom. Getting on the UK property ladder won’t be as easy as it used to be after the post-war period…if people continue to use the traditional way of buying a house. But let’s see how a more creative way can help many to reclaim their right to access the UK property ladder.

Income multiples are used by lenders, as one calculation, in determining how much they are prepared to lend on mortgage or remortgage. The most common multiples used are between 3 to 3.5 times a single income or between 2.5 to 2.975 times joint incomes[1], whichever gives the higher figure. This is generally accepted as standard multiples in the United Kingdom.

Since house prices soared comparatively to incomes during the previous two decades, some lenders were obliged to introduce more generous income multipliers especially when the loan to value is relatively low. Some lent money up to 5 times or 6 times an individual’s salary. Obviously with the credit crunch that criteria has all but disappeared. But in 2007, according to the BBC, house costs to income ratio were on average above five (with certain regions exceeding the average of 16!)

When we discussed “what’s wrong with renting” I said that your income level should not be the differentiator to choose whether to rent or buy. You’ve seen that when using the calculator, even someone renting should have some money invested or some savings. Traditionally the purchaser will provide the deposit. Banks assume that your deposit will come from a parental gift or your own savings.

Who can afford to save in an economy crippled with debt?

Ok, if you’re renting banks will not ask to see proof of savings. But when you want to buy, ah ah, who are the villains - those who don’t save enough?

But in the current climate, even the banks realise that even the super frugal are finding it very hard to save as house prices increased so much during the last decade compared to incomes.

So mechanically, affordability has dropped. For example, in 2003 the average household income in England was = £34,197, the average house price was = £115,181. The house price to income ratio was = 3.36.

 In 2008 the average income was about £38,302. The average house price reported by the BBC was =£197,000. Therefore the current house price to income ratio is about 5.1!

 Let alone house prices, inflation is the biggest threat to your money!

Inflation has always been there and will always be as long as the world economy is driven by debt. So because it is always there, inflation is often overlooked. When prices are going up, our money doesn’t stretch so far. And if you wanted to be seen as a good boy or girl from the bank perspective, know that inflation will also eat into your savings, gradually eroding their value.

Let’s say you put £1,000 under the mattress and forgot about it for 10 years. You would still have your £1,000 after a decade, but it would only be worth about £775, assuming inflation of about 2.5% a year.

But you’re cleverer than that, you don’t keep your cash under the mattress; you put it in a savings account. Did you know that inflation also makes it harder to earn a positive real rate of return on your savings?

If you pay tax at basic rate you would have to earn interest of at least 3.13% gross to beat tax and inflation at 2.5%. If you are a higher rate taxpayer, you should look for an account that pays at least 4.17%. So while you’re trying to save, prices are going up and you may never catch up unless house prices come down seriously which is what we are seeing now in 2008, in the United Kingdom. But this trend will not go on for a long period of time. House prices follow a cyclical pattern that only professional investors understand very well. The rest of population rely on the news to get educated. That is why, when I discussed “What’s wrong with renting?” one of the critical condition to buy a house is to develop a sense of investing and to start taking responsibility. That’s exactly what you’re doing by reading this report.

The question you should ask yourself: is there a way to save for a deposit, beat the taxman and inflation, regardless of whether house prices go up or down? The answer is yes, there is!

Let’s assume for a moment that you manage to find the money for the deposit. The next problem is your affordability. The banks adjust affordability criteria by using an internal decision tool called mortgage income multiplier.

A rent to buy agreement means:

1. You rent (lease) a property by signing a Residential Tenancy Agreement. This could be a standard Assured Shorthold Tenancy (AST) or a different tenancy agreement depending on your arrangement with the landlord.

2. You pay for the right to buy the property by an agreed date at a fixed price. The amount you pay (separately from the lease payments) is called the Option Fee.

3. You do not have to buy the property. You can change your mind. However, the option fee is not refundable.

4. Once the option fee is paid, the seller MUST sell the property to you at the agreed price in the agreed time if you wish to buy and if the tenancy agreement has been met. This is called exercising the option.  The specific details of the tenancy agreement are covered in the Residential Tenancy Agreement, which is the rental contract between you and the owner of the property. 

The specific details of the option agreement are covered in a separate document. This is the agreement between you and the owner of the property.

The advantages of Rent To Buy:

1. Only the seller’s approval is required at this time- No bank or finance approval is required until you decide you want to get finance to buy the property. This leaves you time to sort out your financial life and arrange the necessary funding.

2. Purchase price will not change. The purchase price is frozen when the agreement is signed and cannot be changed regardless of any change in the value of the property.

3. Short exchange. You don’t need to wait on bank or finance approval.

4. Try Before You Buy. If you are unsure you really want to buy or are unsure that this is the best house or location for you, you can change your mind about buying. You will lose the non refundable option fee, but you haven’t paid out thousands of pounds in Stamp Duty and loan repayments. You also don’t have to deal with the burden of reselling the house with ever increasing legislation such as Energy Efficiency Certificate (EPC) or Home Information Pack (HIP).

5. Buy at your leisure. The purchaser may buy the house at any time during the term of the contract so you can choose the right time based on your personal circumstance.

6. Establish a good credit rating. If you are unable to currently obtain a bank or other housing finance, proof of regular rent and option repayments over several years may help to establish a good credit rating, which may assist securing the necessary finance.

What are the steps to take in order to move into the property and then buy it?

1. Find a landlord/seller with a property that you like. We can help you with this process.
2. Discuss the terms of the tenancy and option with the landlord/seller.  Although it will not be legally binding, it is nevertheless advisable to get a pre agreement in writing to ensure the both parties are clear about what has been discussed.   
3. Appoint a solicitor to handle the exchange and signature of Tenancy agreement and the Option agreement. Your solicitor will deal with the landlord/seller solicitor to ensure that the above agreements are legally binding for both parties.
4. Sign the Deed of Option
5. Sign the Residential Tenancy Agreement
6. Pay the one off option fee and pay the rental deposit. Some landlord-sellers may be flexible and allow the option fee to be paid instalments.
7. View temporary contract for sale and see that it contains the elements agreed in the option agreement. Some will not draw a contract for sale until you write to their solicitor expressing your wish to buy.
8. Complete the periodic payment authority for direct debit of rent and option fee payments from you bank account.
9. Move into the property, look after the property, pay your rent on time when it’s due.
10. At least 3 months prior to the expiry date of the Option, advise the seller that you wish to proceed and buy the property. Seek bank or other financing as required. Arrange for a solicitor to handle the purchase on your behalf.
11. Purchase the property and stop paying rent.

What are the obligations of the person talking out the rent to buy agreements?

The obligations of a person renting a property are set out in the Residential

Tenancy Agreement and include:

1. Paying the rent on time
2. Keeping the house in good condition and repair
3. Remaining in control of the house-ie cannot leave it vacant for more than 30 days
4. If the tenancy agreement is breached, the Option agreement could be terminated and the Option fee forfeited.

The obligations regarding the option to purchase the property are set out in the Option agreement and include:

5. The obligation to pay the Option Fee on time (the Option Fee is fixed for the duration of the agreement and will not be changed)
6. The obligation to advise the seller of the intention to buy the property and to allow sufficient time for all necessary steps (eg arranging a bank loan so that the purchase can be settled on or prior to the expiry date.)

What happens if the rent or Option Fee instalments are not paid?

If the rent or the Option Fee instalments are not paid within 14 days of the due date, the tenant will be in default. If the payments have not been brought up to date by the time the next payment is due, the seller may terminate the Option agreement. The tenancy may be terminated according to the conditions in the Residential Tenancy Agreement. But the tenancy has not lost the house. He’s only lost the right to buy it. This is nothing compared to facing repossession and seeing your home sold at auction.

What happens on termination of the tenancy?

The tenants must vacate the property and leave it in the same state as he found it

What happens to the Option Fee?

All money paid towards the Option Fee is non-recoverable.

Who pays the default costs’?

Any costs and expenses arising from the default are paid by the purchaser, including any expenses incurred by the seller.

These finance options are now everywhere and it is applicable to cars, household goods, computers, software electronic goods, broadband services, training courses, sports equipment, even digital musical download to name but a few…

The key thing is that no one expects to see standard terms and conditions. But each terms and conditions have to be agreed and deemed fair to both parties who mutually agree to enter into the “try before you buy” agreements.

The other concept I should explain is that of car leasing. Since very few of us can afford to buy a Ferrari outright and most of us love a new car we are left to turn to other options - from car leasing (also known as ‘contract car hire’) to car loans and from hire purchase to personal contract purchase (also known as ‘PCP’). The idea is to afford something of high value but not outright.

The cash option is out of reach for the great majority. And if I had the cash to buy a house, I would still try to get a mortgage and invest the difference. But that’s just me.

The car loans route is similar to getting a mortgage to buy a house. We’ve already explored this in great details as the traditional way of buying a house.

We are left with car leasing (contract car hire), hire purchase or personal contract purchase (PCP). These all operate to the same principle: you pay a monthly sum over a two-four year period but you never actually own the car until you fulfil the conditions for ownership or exchange or exit.

Don’t you think the prospect of owning a home under flexible terms between the buyer and seller is the way forward for home ownership?

Renting the traditional way will never give you ownership entitlement. It’s money flushed away and never to return!

Let’s see what benefits you could enjoy when renting a house with the view (the option) of owning it the future.

 The effect of market conditionsI have tried to reflect the current market conditions in the UK where property prices are still falling and inflation is running up. However the calculator does not allow for property price decrease so I put 0.1%. Like in the late 1980s, with a shorter period of residency of a few years, there it is a greater possibility that you may get caught out by a short term dip in prices.  If the tool accepted negative property price inflation rate, the results should have shown that renting at least for the next 5 years would be better. But at 0.1% property price inflation the results are showing that starting from year two, buying becomes the best options. In a rising property market, for a short period of a couple of years or so, renting might be better but for a longer period it is obvious that you would be better off buying.  What ifsIn any case it is worth performing several different rents versus buy comparisons, specifying different rates of house price increase, different mortgage rates to compare the results for different scenarios to see how the outcome is affected.                                                                                                               

Without being perfect the best rent or buy calculator I have found is the one of MSN UK.

http://money.uk.msn.com/mortgages/calculate/rent_buy_calculator.aspx Let’s take an example of someone who pays a rent of £800 per month. In Middlesex in 2008 this amount allows you to rent a one to two bedrooms flat. We now search for a one to two bedroom flat to buy. Depending on the area and if you negotiate well you can get that for £150,000. Let’s crunch the numbers in the Rent or Buy Calculator. 
DepositThe rent or buy comparison assumes that the money you have available to put down as a deposit should you decide to buy, will instead be invested should you decide to rent. This investment capital is then assumed to grow at the investment rate of return. Buying CostsThis is the total of all the costs associated with buying the property, including stamp duty, conveyancing, solicitor’s disbursements, surveying and the cost of any immediate repairs that are required. Let’s say the property is in perfect condition. We don’t include any costs such as removals that would be equally applicable whether you decide to rent or buy. Interest rateMortgage rates can vary tremendously over time. Unfortunately nobody can accurately predict  future interest rates, although many try. If you are comparing rent versus buy over a period of residency of several years then it may be safe to base the comparison on a mortgage rate fairly similar to today’s rates. For a comparison over a longer period of a decade, visit as many bank websites as possible and check their lifetime tracker rates or ten year fix rates.  Discounted MortgageMany, if not most, mortgages now offer an initial period during which the interest rate is discounted or fixed at a reduced rate. I’ve put discounted rate of 5.5% which in today’s climate is a good deal. MaintenanceIf you anticipate staying in the property for only a few years before selling up, and the property is in fairly good condition, then you may get be able to keep annual maintenance costs fairly minimal. If you anticipate a longer term residence however then it is wise to budget a reasonable amount for maintenance, not just to make improvements but also to preserve the value of your property Property InflationWith all the bad press on an imminent UK property crash, the credit crunch etc…I was very surprised to see the rent or buy calculator did not allow for a negative inflation rate. As if the tool considered that properties never depreciate. But at the same time the site provides this explanation: “The rate of increase in property prices can fluctuate widely from year to year. During a prolonged ‘boom’ in property prices it easy to think that an investment in property is almost guaranteed to significantly increase in value every year. However this may not always be the case.” As a historical guide, during the years 1993 to 2002 the rate of increase in house prices has varied between a decrease of 2.5 % and an increase of 16.9%, as can be seen below.1993 -> -2.5%1994 -> +2.5%1995 -> +0.7%1996 -> +3.6%1997 -> +9.4%1998 -> +10.9%1999 -> +11.5%2000 -> +14.3%2001 -> +8.4%2002 -> +16.9% The average of the above rates of house price increase is 7.57%. For a rent versus buy comparison over a relatively long period of a decade or more you may consider that the average mentioned above is a reasonable estimate for a comparison.

Given that the transition from rapid increase to negative increase may occur quickly and unexpectedly, also given the fact the current market conditions is of a decrease of price rather than an increase I decided to put a stagnant market with an appreciation of only 0.1% of property value. Monthly RentThe amount of rent, relative to the price of the house that you would otherwise purchase is an important factor in the comparison. Rent is assumed to increase in line with the increase in property prices. So rent will also increase around 0.1%. Rented maintenanceAlthough with most residential property rentals it is the landlord that is responsible for maintaining the property, there may be cases where you agree do some of the maintenance or you anticipate carrying out some improvements with the landlord’s permission, even though not bound to do so by the rental agreement. The annual cost of maintenance is assumed to increase each year at the general inflation rate. Investment CapitalIf, as is normally the case, your mortgage is less than 100% of the property’s purchase price, then you will be providing the difference as your deposit. If you decide to rent instead of buy then it is assumed that you will instead invest that money. It is assumed that these funds will grow in line with the investment rate of return. It is not assumed that you will spend the funds on the holiday of a lifetime! Investment Rate of ReturnWhether you would play safe by putting it in a building society or be prepared to live with the ups and downs of the stock market in the hope of a better return the choice is yours. I put an estimate of the average annual rate of growth of an investment. General InflationThe annual cost of property maintenance is assumed to increase in line with general inflation. A useful indicator general inflation is the Retail Price Index. Over the past decade or so, the average annual rate of increase in the RPI was 2.63%, as shown below.1990 - 9.5%1991 - 5.9%1992 - 3.7%1993 - 1.6%1994 - 2.4%1995 - 3.5%1996 - 2.4%1997 - 3.1%1998 - 3.4%1999 - 1.5%2000 - 3.0%2001 - 1.8%2002 - 1.7%2003 - 2.9%2004 - 3.0% Length of ResidenceThe average length of time that people retain a mortgage is 6 years, after which most people sell up or switch mortgages. This calculator is designed to show whether at the end of this period you would have been better off by putting your money into property or investing it, given their respective costs and the estimates for growth and inflation that you have made. 

Following is an example of one bank’s online buying guide: http://www.lloydstsb.com/mortgages/first_time_buyer_guide.asp 

1. Plan ahead: this stage is about building up some savings to put down as a deposit, reducing your expenses, and polishing your credit record (if you have one).
   
2. What you can afford: this stage is about the size of the mortgage you want to take and the related mortgage payments
   
3. Searching for the right place
   
4. Find the right place and make an offer
   
5. Deal with the legal process
   
6. Exchange contracts
   
7. Completion. Congratulations the house is yours. But you still need to move into it!

 Each of these stages contain sub-tasks you need to carry out properly to successfully buy. So when you read that buying a house is one of the largest commitments someone makes in his entire life that is true. The question I want you to think about is: Could we make this process lighter and less stressful? I’d like to answer yes. I believe that a simplified buying decision process should only be based on two fundamental questions that guide your decision process:
 o    Have you found an area you could stay in for more than a year? This means you have become less transient than when you decided to rent rather than buy.

o    Assuming that you’ve developed a sense of investing can you afford the mortgage payment or even a little bit more? We could not avoid this question about affordability any longer. So let’s deal with it now. Before buying my first house in 1999, I was renting. But before that I was housed by a friend and I did contribute toward his mortgage payments… I always had the desire to own my house because it did not make sense to flush all this money toward the rents if I was going to stay in the same area for more than one year. £750 * 12 = £9000.00 will disappear forever after 12 months.   In the meantime I knew that properties go up in value along side with inflation. My sense of investment started to blossom. After renting for about 4 months, I worked out how much extra I could pay towards a mortgage if I wanted to buy a slightly bigger house in the same area in which I was renting To get that first foot on the UK Residential Property Ladder I needed to compare my options: to rent or buy?

The MoneyMadeClear™ website has a section which explains what a mortgage is: http://www.moneymadeclear.fsa.gov.uk/products/mortgages/mortgages.html Let me reproduce here the key information but visit the website for the original definition provided by the FSA. A mortgage works like any other kind of loan – you borrow money, and you pay it back with interest over a period of time. But it has one key difference: it’s secured against your home. So if for any reason you can’t repay it, the lender can sell your home to recover their money. This process which allows the lender to sell your home to recover their money is called repossession. And we mentioned that already. It is something to avoid at all costs. The MoneyMadeClear website also mentions another type of loan to buy an investment property: Buy-to-let mortgages. Because these types of loans are not regulated, the FSA refers you to the CML website but without providing a link. I’ve done the work for you. You can visit http://www.cml.org.uk/cml/consumers/guides/buytolet#oneto understand what is a buy to let mortgage. Buy to let mortgages are strictly reserved to property investors and landlords. But for now we are focussing on the residential property ownership.   We now know what a mortgage is but getting a mortgage is it the very first step to buy a house?