How To Get Onto The Property Ladder Without A Mortgage?

In today's blog, I'm going to talk about how you can get your foot onto the property ladder if you are renting, and if you already own your own home, I'll discuss how you can upgrade to a bigger property in a better area.

What Is A Tenant Buyer?

It's someone who moves into a property, much like a tenant under an assured shorthold tenancy (AST) contract, but with an additional lease option in place. This option grants them the right to purchase the property at a fixed price within a specified period. Although the tenant-buyer operates under a standard AST contract, they differ from typical tenants as they care for the property as if it were their own home. Consequently, they assume responsibility for repairs, maintenance, and any desired improvements, all of which can enhance the property's value, potentially leading to eventual ownership.

The Benefits Of Being A Tenant-Buyer

Buying your own home can be one of the biggest decisions you will ever make. However, as a tenant-buyer, you've got the huge benefit of being able to try before you buy, to make sure you really want to buy that particular property.

For example, I was looking for a home to buy in Birmingham in 2011 with my partner at the time, and I was able to secure a purchase lease option on a lovely listed Edwardian property in Birmingham for 12 months. Now, although it was a great property, there were a few things that we didn't like, which we only discovered when we were living in the property. So as a result, we decided not to exercise the option and not to buy that property. We moved out, and the owner found a new buyer for the property. It would've been a very expensive mistake to make if I'd bought the property, and then realized we didn't want to live there. So, it's a great way to try before you buy.

Probably the biggest benefit of a tenant-buyer is that you get to secure a property, lock in a price, get your foot on the ladder, and benefit from potential capital growth without the need to get a mortgage now. First-time buyers often have two problems when it comes to buying their property. Sometimes it might be saving enough for a deposit, usually five or 10% of the purchase price. But often the biggest problem is being able to secure a mortgage to buy that property, particularly when interest rates are relatively high now.

The Challenges That Renters Can Face

The first one is they just don't earn enough money right now to be able to get the mortgage they need, but they will earn the money in the future. Maybe they're on a career path, they're getting regular pay raises, or they're looking to start their own business, and they're confident that in a couple of years, they'll be able to afford the mortgage.

The second challenge is they might have a poor credit rating, which means right now they can't get a mortgage. However, they are confident that in the future, they'll be able to improve their credit rating. Perhaps they're paying off debts, and they're confident that they will be able to get a mortgage in the future.

The third challenge is they've just moved to a new area. Maybe they've got a new job, or they've started a new relationship, and they want to live in that area, but they're not sure if it's the right area for them to put down roots and buy a property. So a lease option gives them the ability to move into a property, try out the area, try out the job, try out the relationship, and if it's all good, then they can exercise the option and buy the property. If not, then they can move on, either rent in a different area or maybe even buy in a different area.

How Does The Landlord Benefit?

It's also a great way to sell a property because you can usually get a higher price for your property by selling on a lease option compared to selling it normally, as you're giving the tenant-buyer the benefit of being able to buy that property in the future at a fixed price, and they're prepared to pay a little bit more for that privilege.

If you're interested in getting the maximum value for your property, selling with a lease option could be a great strategy. It's also very flexible, and you can structure the deal in many ways. You can decide how much of the rent is going to come off the end price, or maybe none of it is. You can decide how long the option period is going to be, whether it's one year, two years, or even longer.

So the tenant-buyer gets the ability to secure a property, lock in a price, try before they buy, and potentially benefit from capital growth without the need to get a mortgage right now. The landlord gets to sell the property, usually for a higher price, and they get a tenant buyer in there who's going to look after the property and potentially buy it in the future.

If you're a tenant, you might want to consider becoming a tenant-buyer. And if you're a landlord, you might want to consider selling your property to a tenant-buyer.

If you'd like more information about lease options, check out my book "Property Magic," where I go into a lot more detail about how lease options work and how you can use them effectively.