For anyone planning to buy their first house this year, better read this article before you venture into the property market. Concerned groups in the UK report that first time home buyers are paying an unbelievable amount of rent before they can save enough money to buy a house.
The Association of Residential Lettings Agents (ARLA) shared that those who will buy their first home in 2016 have already spent an average of £52,900 on rent. As for those who are only starting to rent now, their costs may shoot up to £64,400 by the time they buy a house of their own.
First time home buyers in London are in a worse position as they pay a higher average of £68,300 on rent money. Their counterparts living in the South East are also set to pay a high rental average of £55,900.
This data was collected with the help of the Centre for Economic and Business Research and took into consideration multiple forms of renting, not just private tenancy.
It’s not just ARLA who is noticing the trend for higher rental rates, even the Office of National Statistics state that the cost of renting a house is higher than the general cost of living.
In 2015, rental payments made to private landlords in Britain increased by 2.5 per cent. England, on the other hand, reported that rental rates hiked up by 2.7%; while Scotland and Wales experienced 0.9 and 0.7 per cent rate jumps, respectively.
While these rates may seem high as they are, some letting agents even claim that the rate increase is much higher than what was reported.
Given the challenges of increasing rent, the question remains: how can tenants improve their opportunities to buy their own home?
Should they just wait for another “few more years” to save up the money they need for a bank loan? Some investors don’t seem to think so, especially with alternative forms of financing like seller finance.
“Seller finance (also known as vendor finance) has been around for years and years in the UK. Under this agreement, the seller is financing the buyer into the purchase of the seller’s property,” said Rick Otton, a pioneer in applying modern seller financing strategies.
“Suppose I’m the seller and I want 200 or 300 grand for my house, but you haven’t got it. You can just pay me every month, or you can pay a lump sum now and a lump sum later until you complete the purchase price of the house,” he added.
In this approach, a buyer’s incremental payments add up. When enough monthly payments have been made, it becomes easier to secure a loan to refinance the property under the buyer’s name because the accumulated monthly payments can be seen as the deposit already paid by the seller.
Rather than come up with all the deposit payment now, seller finance terms makes it easier for the buyer to pay the deposit in a more flexible manner. Under this agreement, the buyer may be allowed to move in the property and use it like normal. To protect the interest of the seller, the Title will only be transferred after the buyer is able to refinance.
It’s a different way of buying property, but it may be something that renters may be interested in looking into, since saving money for a deposit is becoming harder and harder.
If you are interested in this type of arrangement, you may check out Rick Otton’s website where he provides more details on how to set up terms and create contracts for these kinds of transactions.Tags: buy a house, cost of renting a house, first time home buyers, First time home buyers in London, seller finance