How to buy your home from your landlord
tenant
. If your
landlord
is selling up, however, they must give you the right of first refusal to buy. This can open a door to home ownership for first-time buyers – if you've got the funds.
The Tenant Home Purchase scheme can provide significant financial support to get a deal over the line. So, how do you make an offer to your landlord, and how much help can you get?
How it works
If you're renting somewhere you like, but saving to buy, your landlord selling up may not be the worst thing. The Government's Tenant Home Purchase option, which is part of the First Home Scheme, is designed to help first-time buyers and 'fresh start' applicants facing eviction buy the home they rent.
A joint venture between the State and three banks – Bank of Ireland, PTSB and AIB, including its subsidiaries EBS and Haven – the scheme tries to bridge any shortfall between your mortgage and deposit and the price of the property.
For many in rental accommodation, their maximum 'four times income' borrowings is not enough to buy. This is where the Tenant Home Purchase scheme steps in, giving minimum assistance of 2.5 per cent of the property purchase price or €10,000, whichever is higher. The scheme can provide up to 30 per cent of the purchase price.
Would-be homeowners still have to come up with the usual deposit of 10 per cent of the home's purchase price. They have to show evidence of mortgage approval in principle for borrowings of the full four times their income too.
The Tenant Home Purchase scheme money is not a loan, however. A bit like Dragons' Den, the Government is actually taking an equity share in your new home.
Running since April 2023, 294 tenants facing eviction have been approved for purchase funding by the end of June this year. Some 158 have gone on to buy the property they rented.
What can I buy?
Tenants can buy a house or an apartment with the Tenant Home Purchase scheme. And this is the only scheme, apart from a refurbishment grant, where the Government will support you to buy a second-hand home.
What you can buy, however, is limited by set ceilings in your local authority area. For example, in Dublin and Wicklow, the house and apartment price ceiling for the scheme is €500,000. In Kildare, it's €475,000 and in Meath it's €450,000. In Cork, it's €475,000 for a house and €500,000 for an apartment. Ceilings are reviewed twice annually.
If the purchase price of the house or apartment you've been renting exceeds the stated ceilings for the local authority area, you can't use the scheme.
It doesn't matter what your income is either. Applicants have to borrow the maximum four times their income, so the borrowings of those earning a decent amount may exceed the value ceiling in their local authority area, making them ineligible for the scheme.
You'll have to come up with the 10 per cent deposit yourself too. The Help to Buy Scheme, which helps first-time buyers with their deposit, cannot be used with the Tenant Home Purchase scheme.
How do I apply?
The first step to applying is having a valid notice of termination from your landlord – you must include a copy of this when you apply for the Tenant Home Purchase scheme.
You must show you have the 10 per cent deposit too, and mortgage approval in principle for four times your income – your rental payments should help with demonstrating repayment capacity.
Where the home is valued at or under the local authority ceiling for the scheme, and your deposit and the maximum you are approved to borrow is less than the price of the property, the First Home Scheme will give you a certificate, confirming that you qualify for the scheme.
Mortgage broker Michael Dowling has helped two sets of tenants using the scheme to apply for a mortgage.
'For one couple, the purchase price of their rental home was €440,000 and they are getting €74,000 towards its purchase through the First Home Scheme,' says Dowling.
'The scheme has made the difference between them being able to buy and not being able to buy a property,' he says.
The landlord wasn't aware of the scheme, but was happy with the price offered which aligned with the local authority ceiling for the scheme.
There are just three domestic banks participating now, so you are limited to their rates. While the scheme is open to others to join, newer entrants such as Avant, MoCo and Nua Money, who offer some good mortgage interest rates, are not yet persuaded.
As the equity amount provided by the Government lowers the loan-to-value ratio, the banks tend to be well disposed to lending, says Dowling.
'The loan-to-value ratio, in terms of the risk the bank is taking on, is lower when they are only lending a certain percentage of the purchase price,' says Dowling.
Payback time
Tenant home purchasers pay mortgage repayments to the bank, just like any other mortgage holder.
They don't make repayments on the Government's equity stake, however – that's because this bit isn't a loan as such. Instead, they make 'service charge' payments to the Government for its equity stake.
For the first five years you own the property, there will be no service charge. The charge kicks in at the beginning of year six – that's if you haven't bought out the Government's equity share.
You have the option to buy the Government out in a single lump sum payment, or over several payments. When you make these payments is up to you.
If you don't buy the Government out, the service charge is at a fixed rate of 1.75 per cent for year six to year 15 and 2.15 per cent for year 16 to year 29. It's charged at 2.85 per cent after that.
The charge is calculated by multiplying the original property purchase price by the First Home Scheme equity share and multiplying the result by the service charge rate for the year in question.
For example, if the property purchase price was €400,000, the Government's equity stake is 12.5 per cent, or €50,000, the 1.75 per cent charge from year six to 15 will be €875 a year.
You can opt to defer these service charge payments too, but you must pay the accumulated charges if you sell the property.
Selling up
If you sell the property in the future, the bank will have 'first charge' on the property – any outstanding balance on the mortgage gets repaid to it as is usual with a mortgage.
The Government has a second charge on the property, so it gets paid too – but its payback is in relation to the current value of the property, not its value when you bought it.
For example, if the Government took an equity stake of 20 per cent, in your €400,000 property to help you buy it, that's a stake of €80,000; it won't get €80,000 from its sale, but rather 20 per cent of the price at the time it is sold.
So, if you ultimately sell your property for €600,000, the Government will get €120,000 back. If it sells for €300,000, it will get just €60,000 back.
'Some people think you only have to give back what you got originally from the Government, but you give back the percentage share – so if the value of your house increases, you will have to give more back,' says Dowling.
'That's the price you pay for being given the money upfront, and not having to make any repayments.'
Advantages
Being able to stay where you rent has significant advantages, for families in particular.
'One family has two children who will be able to continue going to the same school and play at the same sports clubs, so there are huge benefits,' says Dowling.
For the landlord, who was getting out, selling to their sitting tenant means no presale staging costs or estate agent's fees.
There is no break in rental payments either and this can save a landlord thousands. Apartments had an average sale time of more than nine weeks in the second quarter of this year, according to estate agent Owen Reilly. Houses took longer. Some 18 per cent of sales are falling through, according to his report, meaning months more of lost rent.
Not using an estate agent makes the sales process slightly different, says Dowling. An agent will usually take a booking deposit from a buyer, holding it until the transaction is complete. They will usually verify the buyer's mortgage approval on behalf of the seller too.
Dowling says landlords he has dealt with have accepted confirmation from a mortgage broker of the buyer's deposit and mortgage approval, and they have accepted the mortgage broker's assurance that the balance of payment is coming from the First Home Scheme.
'Will all landlords be as amenable? I don't know. A buyer could get a solicitor to handle this too.'
Right to buy
If you are not eligible for the Tenant Home Purchase scheme – perhaps your four times income borrowings exceed the local authority ceiling for properties in the area – you can still make your landlord an offer yourself.
Tenants in private rented accommodation who do not receive housing support have the right of first refusal to buy their rented home if it is put up for sale. The landlord must invite the tenant to make a bid within 90 days of serving a notice of termination due their intention to sell.
One possible route is for both tenant and landlord to agree to get independent valuations of the property and to meet in the middle.
If a tenant's initial bid is unsuccessful, by law, they have the opportunity to match, if they can, the final sales price agreed with another party on the open market. Importantly, landlords are obligated to accept a matching bid from the tenant.
New rules for landlords due to take effect in March next year will further limit rent increases and the ability to end tenancies. This may drive more landlords to sell up. Tenants interested in buying would be minded to get their ducks in a row.
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