Purchase Option is an increasingly popular arrangement for acquiring Below Market Value property. Whether you are an investor/landlord or tenant/buyer, purchase option can be an effective and efficient property-buying tool as no new mortgage is required.

1) the investor/landlord, who wants to acquire a property without deposit or obtaining a mortgage;

or 

2) the tenant/buyer with poor credit rating or non-UK residential status, which is getting in the way of obtaining a mortgage.

a) someone to rent an already mortgaged property; 

b) the current mortgage payment to be taken over by the buyer; and, 

c) the option-to-buy the property within an agreed timeframe.

The buyer will need to obtain funds (mortgage/loan), to execute the option to purchase the property. Failing this they may be able to negotiate an extension to the contracted term or will have to withdraw from the option.

 

A period of regular monthly payments to a purchase option arrangement should improve credit worthiness and attract a more favorable mortgage/loan than might otherwise be the case. It is advisable to speak with an independent mortgage broker at outset.

3. Can I meet normal household expenses after I buy the property? 

Tenant/buyers need to satisfy themselves they will have sufficient income for the upkeep of the property after it has been purchased, factoring-in: mortgage payments; property taxes; insurance; and, maintenance costs.

 

Investor/Landlords need to be sure they will have the property occupied.

STEP 1. Selecting a property ~ through our company you may have the added advantage of apurchase option at a below market value price.  

 

Call 0203 287 1736 to discuss your property options.

STEP 2. Getting a property surveyed ~ prior to committing to a purchase option it is sensible to obtain a property survey, which the buyer *pays for.  Following reservation, you instruct an independent surveyor to undertake an inspection. If relatively minor problems are revealed, the buyer will need to make sure these defects won't compromise any future mortgage application and that the purchase contract specifies who is responsible for making good the repairs.

 

The costs for fixing longer term defect is negotiable with the seller at outset agreeing an allowance against the purchase price to enable the buyer to make good the repairs when the purchase option is exercised.

STEP 3. Agreeing ~ purchase price, contract term, the amount of initial option fee, the amount of the monthly payments that will go toward the deposit and who is responsible for any immediate repairs, is negotiable as the seller is effectively being relieved of their property debt (the mortgage). This places the buyer in a position of strength but, remember to be reasonable.

 

The Purchase Option contract should also allow the buyer the right to sell the property within the term, settling the agreed purchase price and enjoying any profit without restriction.

STEP 4. Paying the option fee and signing the contract ~ will occur once both parties are comfortable they understand and accept the terms with the purchase option which specifies a fixed purchase price for the property.  Your solicitor will advise.

STEP 5. Obtaining insurance ~ is a wise precaution to protect one's interest in the property, treating this purchase as already owned is sensible.

STEP 6. Maintaining the property ~ in good condition during the contract term often generates extra profit. A well maintained property increases its value which in turn increases the proportional amount of your deposit. This should help attract a more favorable mortgage offer, with a lower loan-to-value, when the option to buy is exercised.

STEP 7. Applying for a mortgage/loan ~ is sensible well before funds are required and not less than 3-months in advance of the end of the contract term to allow for due process. A clean contract period may qualify the buyer for a re-mortgage with the lender who originally held the mortgage and attract a lesser interest rate with quicker administration than would otherwise be the case if applying for another mortgage with a different lender. 

STEP 8. Completing on the property ~ takes about half the time (4-6 weeks) to conclude a purchase option contract than it usually takes to obtain a BTL mortgage. Once contracts are exchanged, you own an option-to-buy this property.

This article is a general guide only and is not intended to replace appropriate, financial or legal advice.