Rental scheme concern

30 March 2009
share post tweet has expressed concern in regard to the array of new rent and buy schemes currently being offered through a number of developers. Our prime concern is the potential difficulty that clients may have in funding the property in two years time if prices at that time are lower than the contracted price.

These schemes have operated in Ireland for a number of years.More recently a number of developers in Dublin have entered this area.The attraction to potential purchasers is that they can move into a new property without having to assemble the 10% deposit currently required by many lenders.Buyers then have two years to complete a purchase with an initial depost usually around 5k and further deposit installmemts being paid over the two year period.

Developers are offering these schemes because they cannot get deposit holding buyers to buy at the prices currently being offered. The clear implication is that the property is overpriced!

Buyers under this scheme should be aware of the following:

  • The units are most likely overpriced
  • If property prices fall they will find it difficult to complete the transaction( see chart below)
  • If the transaction is not completed they will lose any deposits paid to date.
Year Valuation Max Mortgage (90%) Deposit/additional deposit Total deposit Requirements
2009 200000 180,000 20,000
2011(-10%) 180000 162,000 18,000 38,000
2011(-15%) 170000 153,000 17000 57,000
  • There is no guarantee that a mortgage approval today will be available in two years time. Not only are banks lending criteria changing but the banks themselves may be completely changed within the next two years. In any event an approval in principle in addition to having a limited life span (usually 1 to 3 months) is not an offer of funding.
  • Anybody considering these schemes should arrange an independent valuation of the property. As part of this exercise they should ask the valuer to estimate what the property will be worth in two years time.