This basically means you are leasing or renting a property with an option to buy it at a future date. The price of the property will be fixed at the time the lease-option is signed.
Lease Options are good if you do not qualify or earn enough presently to obtain a mortgage. This could be trainee’s who when qualified will have extra earnings, people just coming into the country, people with no deposit, or people with adverse credit. Usually adverse credit will only be kept on your credit file for six years.
It may be that in today’s market, mortgages are just too expensive and you want to wait until they become cheaper.
There is a small up front payment to purchase the option. This can also be made on a small deposit and built up by paying the remaining fee on a monthly basis. You can also save towards a deposit each month in a trust account. The option money will be applied towards the deposit for the later purchase of the home.
The good thing is you get to live in the house now and benefit from any improvement you make as they will increase the future value. As your purchase price is agreed at the start any increase in value is to your benefit. You can exercise your option at any time up to the final date on it. You may be able to extend the option.
Example:
You take a lease option to buy in three years at £100,000.
You pay £2,000 to purchase the lease option, either in full or by deposit and then monthly. (This is your money towards your future purchase).
You pay rent to live in the property.
You decide to save £100 per month. This is held in an account for which you receive statements and always know where your money is.
Two things could happen.
scenario one: House prices increase and you exercise your option. You still only pay £100,000 and any equity above that is yours. If you went the full three years you would have £3,600 in savings plus your £2,000 option fee, total £5,600 as your deposit.
scenario two: House prices fall or for some other reason you decide not to exercise your option and walk away. You would lose your option fee. Any savings you had would be returned in full.
Tenant/Buyer
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