Buyers who do not have 10% deposits are left out in the cold—Learn How LEASE OPTIONS Can Help
"Buyers who do not have 10% deposits are left out in the cold" - This is the headline of an article in the February 29, 2008 issue of The Times. The article started with "Lloyds TSB has become the biggest lender to refuse mortgages to buyers who do not have a 10 per cent deposit." Add in the fact that two weeks before then, first time home buyers could borrow up to 125 per cent of the value of their home. Then, a week later, virtually all lenders withdrew these deals and recently 15 lenders also removed their 100 per cent mortgages. What does this mean to you as an investor?
Well, with the average UK house price being £175,093 (Halifax building society), this means that a first time buyer needs a minimum of £17,500 just to buy their home - not including fees and stamp duty. This figure is close to the average annual wage for the UK, creating a horrendous scenario and undoubtedly a decrease in first time home buyers. This is unfortunate as the first timers are forced out of the market due to the high entry levels needed and the high tax restrictions through stamp duty. One could also argue the high level of inheritance tax would prevents many older individuals from providing these deposits to their children or grandchildren.
How does this affect the investors?
With 15 per cent of the housing market currently owned by investors, recent consequences would suggest that this figure is set to rise, perhaps up to 20 per cent in the next few years. Wonderful from a buy to let scenario, but at Whitney UK we also teach individuals to provide a degree of ethical investing, and within this case perhaps Lease Options can be the answer.
Whitney UK introduced the first industry educational course on Lease Options in the UK back in 2004, where we described how Lease Options could revolutionise the first time market, as well as the current repossesions markets. Today, this strategy is perhaps even more prevalent than before with the current credit crunch. It should be looked at eagerly to help the first timers, as well as providing a great business model for our investors.
Explaining Lease Options in detail here would not do it justice. However, here's a simple Lease Option scenario to help you better understand it:
Tenant A rents a house worth £200,000 and is looking to buy in two years time. If with Lloyds TSB, the individual will therefore need around £27,000 for a deposit, stamp duty and fees – a sizable sum to save! Tennant A currently rents at £1000 a month, but in this scenario Landlord B offer a Purchase Option to the tenant to purchase the house in two years for £205,000 with a rent of £1200 per month for the two years. After two years tenant A therefore has the option to buy the property for £205,000, if they want. In today's market we may see a 5 per cent capital growth this year and next, which means that the tenant in this scenario will be able to buy a property for £205,000 which is valued at £226,012, so a built in £21,012 for their purchase at a cost of £2400 in extra rent.
Why is this beneficial?
For the Tenant:
- They save a deposit (it is far easier to buy using OPM)
- They have stability and can make it their home
- If the capital appreciation has not risen, they do not need to buy
For the Landlord:
- They have a guaranteed sale with no agent fees
- They have increased current cash flow of 20 per cent a month
- No void periods
- Reduced maintenance, since tenant hoping to own the property will look after the property like it was their own
There are many facets to Lease Options. At Whitney UK, we cover them during our initial three-day programmes taught by investors who actively practice these strategies. Learn how to run a great property business in this market, and learn how to help others by learning about Lease Options. |
