Buy House From Landlord
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Buy House From Landlord
Caroline Dunion is back to explain the process in buying your house from your landlord.
What happens if my landlord decides to sell? Can I buy my rental house from my landlord?
Yes, in theory, you can buy a rental house from your landlord – if they agree to that purchase. There’s a number of reasons why it might be advantageous.
Obviously, if the landlord’s intending to sell the property on the open market, they’ll probably want you to leave to do that. By default, that means they’ll have a void period where they won’t be getting rent, and they’ll be liable for council tax and utilities.
Selling to a tenant can be really beneficial because it avoids that void period. But they do have to agree to it. There’s certainly no reason why you shouldn’t ask the question.
What is the process of buying a rented house from a landlord in the UK?
In general, it works much the same as any other purchase. You can agree a price with the landlord that they are happy with. Normally if you’re looking at properties on the open market in Scotland, there will be a home report to establish the market value and the condition of the property.
If you live in the property, you might be acutely aware of the condition, but it wouldn’t have been assessed by a surveyor.
Part of the process would be agreeing whether the landlord wants to get a home report and an official valuation to help you decide on a figure. That’s got to be discussed. If you have an advisor with McKendry Dunion, we can help you and the landlord navigate the right solution for the circumstances.
Can a landlord just sell the house you’re renting? What are my tenants rights if my landlord wants to sell?
I’m not an expert on the legalities of letting, and people who have been renting will know that recently the legislation has changed quite dramatically, particularly in Scotland.
But my understanding is that if a landlord wants to sell the property, they are perfectly allowed to do that, but they would have to give you notice. That will depend on the tenancy you’re on.
The tenancy legislation changed relatively recently. If you’re on a very old tenancy, the rules might be different from somebody who’s taken up a new tenancy recently. Typically, the landlord has to give you 28 days notice if they want to sell. If that is the case, they give you that notice of eviction and you would be obliged to leave.
How much notice must a landlord give a tenant when selling a property?
It’s worth checking the document or even speaking to your letting agent if you have one. The notice period can vary – it can also vary from country to country. Do check, if that’s important to you.
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How can I buy a house from my landlord without a deposit?
This is a very exciting question, because this is one of the real advantages of buying from your landlord. In that landlord/tenant relationship, it’s possible to have what’s known as a concessionary purchase.
It means that if the landlord is prepared to sell the property to you below market value, you can use that ‘discount’ as your deposit. So, theoretically, you can buy without having deposit funds.
You would still need to pay your legal fees and any land and buildings transaction tax that applies, but you can use that discount as your deposit. You cannot do that on the open market.
Just to keep the numbers simple, if the property is worth £100,000 and the landlord is prepared to sell it to you at £95,000, you can use that 5% as your deposit.
On a property advertised on the open market at £100,000, if you were able to negotiate and buy it at £95,000, you would still need a minimum of a 5% deposit on the £95,000, depending on your mortgage eligibility.
You do have to get a landlord who’s prepared to sell to you at a discount, but sometimes it works out well, because it means they can avoid any void periods. It could be that the property would need renovations or redecoration to go on the open market, so that the landlord avoids that – and they also avoid any estate agency costs.
Both parties still need a solicitor, but there are some savings so it can work out really well for everybody.
What are the costs of buying my rental property?
You would always have solicitor costs. It depends where you’re buying as to what that would be. Typically, you’re looking between £1,500 and £2,000.
If the property is above a certain threshold, you’ll have land and buildings transaction tax, the property tax that replaced stamp duty. Again, speak to an advisor to help you navigate your budget and where the tax would kick in for you.
Usually, you will need a deposit – depending on whether you’re buying at a discount or not. You’re really looking for 5% as a minimum.
What is a leaseholder?
This confuses everybody – it’s not something we have in Scotland. That’s important to note.
If you’re buying a property in Scotland, you don’t need to worry about this.
In England, effectively a property is sitting on a piece of land that might be owned by somebody else. If you are looking to buy in England, it’s important to get an advisor to help you with a mortgage, but also a solicitor to help explain where the liability lies with this.
Can I apply to buy if I have rent arrears?
Theoretically, yes. Most of the time, if you have rent arrears, that will not be noted on your credit file – unless it’s got to the point where you’ve been taken to court.
However, if you are trying to buy from your landlord, they may not feel favourably about selling to you if you have rent arrears. It would certainly impact your negotiations. But if you are behind with rent, you may still be accepted for a mortgage.
Do I have to complete the purchase within a specified time?
No. Usually the date of transaction is negotiated between both parties. Mortgage offers usually have a time limit – typically for six months. If it goes beyond that, you may have to reapply, depending on the lender. So people tend to want to complete within that timescale.
The quickest transaction might take about six weeks, but it could equally be several months. But as I say, it’s usually done by negotiation.
What happens if my landlord delays the sale?
It’s much the same as if this happens in any transaction. We sometimes see this, but there’s not much you can do. It’s all done by negotiation and it’s much better if you can just come to an agreement.
If it’s really problematic, the only real power you have is to walk away from the sale – but it depends where you are in the legal process as to whether that’s even possible.
Keeping good lines of communication open and trying to come to a mutually beneficial decision is definitely the right plan.
What if I want to remortgage?
When you initially buy the property, you’re doing that as a purchase. Usually your mortgage product will last for a period of typically two, three or five years, although other terms are available.
When you come to the end of that, you would be well advised to review your arrangements and consider remortgaging. At that point, it’s no different from any other remortgage. The fact that you bought from your landlord doesn’t put you at any disadvantage.
Can I sublet my home?
Most mortgage lenders are not happy with that. They’re certainly not happy with people having any meaningful tenancy rights in a residential property. This is not my field of expertise, though, and I know there was a scheme that allowed people to rent out rooms.
Generally speaking, the tenant isn’t particularly protected in that scenario. Most mortgage lenders will be quite relaxed about that, but ultimately, the mortgage lender has a charge over the property and they are superior in the hierarchy.
If you stop paying your mortgage and you have a tenant, they will be asked to leave. If you want to let your property, because you’re leaving and it’s not already a Buy to Let property, you do have to ask for permission to do that. It depends on the lender whether they’ll agree to it. They may also charge you for giving that Consent to Let.
What are the pitfalls of buying a tenanted property? What are the advantages and disadvantages of buying your rental property?
Generally, it can work out very well for all parties – it can lead to minimal hassle both for the landlord and the tenant, especially if the tenant’s very happy where they live.
Another advantage for the tenant is that you’ve tried before you buy – you already know if there are things that don’t work terribly well and what needs done to the property. There are lots of advantages.
It’s less hassle for everybody, but beyond that, it’s much the same as buying any other property.
You’ve demonstrated how a mortgage broker can help – is there anything else you’d like to add?
If you do have that opportunity to buy a rental property, and you want to do it as a concessionary purchase, not all lenders will accept that. So an advisor is really a good place to start.
We’ll explain what’s possible and the costs with particular lenders available at the time. We can chat over how you might want to start negotiations with your landlord – we can be a useful sounding board throughout the process.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
