Try it, and if you like it, then buy it...
Could a rent-to-buy housing scheme that helps first-time buyers get on the ladder help stabilise the new homes market, asks Róisín Carabine...
A rent-to-buy scheme that allows prospective buyers to lease a new home with the option to buy later, using part of the rent towards the purchase, is growing in popularity with first-time buyers and developers as the credit crunch worsens and residential sales stagnate.
Seán Power of Rent2Buy in Ballincollig, who first introduced the scheme to Ireland three years ago, says interest has more than doubled in the last few weeks, with 1,200 first-time buyers now registered on its database.
"Of those who have recently signed up, the majority – around one in six – want to buy and live in and around Dublin. We've a number of buyers particularly interested in the Swords area," says Power, who plans to match 1,000 prospective buyers with homes in 2009.
The scheme was first launched at The Beeches, a development in Boherbue, north Cork, and has expanded in the past few months to include properties in Kerry, Cork city and county, and Tipperary. New developments in Wexford, Clare and Dublin are expected to come on board within the next few weeks. The company also offers a handful of secondhand properties from individual sellers.
Buyers who sign up to the scheme pay rent at normal market rates to the developer for an agreed period, usually three years, after which time they can opt to buy their property at a pre-agreed price, based on the market value of the property at the time of the contract.
"The buyer must also put down a deposit of €2,995 (plus VAT) which goes towards the purchase price but which is non-refundable in the event of the sale not going ahead. A portion of the rent, sometimes up to 100%, is also credited towards the purchase price," says Power.
The website (rent2buy.ie) lists one- and two-bed apartments at a new development in Ard Cluain, Clonee, which can be bought under rent-to-buy. The one-beds are available for €199,000 at a rent of €900 a month with a €600 monthly credit. The two-beds can be bought for €235,000 and rented for €1,200 a month with a €700 monthly credit. The buyer can choose to buy at the end of two years and will have up to €16,800 available in rent credits (plus their initial deposit) against purchase price.
According to Power, the rent-to-buy scheme is a win-win situation for both developers and first-time buyers.
"It brings cashflow to properties that otherwise might be stagnant. And buyers lacking adequate deposits or struggling with poor credit can build up savings in order to get a mortgage," says Power.
"The buyer can earn credit from the rent, which is usually seen as dead money, and the developer doesn't have to worry about the buyer not looking after the property as they have a vested interest in it. We also carefully vet buyers to make sure they're in a position to buy at the end of the three-year period should they wish to."
Power is confident more developers will sign up to the scheme as the recession deepens, and believes it could have a stabilising effect on the market.
"If you can't shift a property that's been reduced repeatedly down to €200,000, price is no longer the main issue. Our market research shows that there are hundreds of first-time buyers out there ready to buy, they just haven't got a deposit and can't get finance," says Power.
He is convinced the scheme can also work when the market returns and sees no reason why developers and buyers will not continue to find it an attractive solution.
"During the boom, building was done on a speculative basis; with this scheme builders could build with buyers already signed up to buy," he says.
Report by Tribune Property.