What you need to know about Rent-to-Buy schemes

Contract law

Buying a home is a dream that many of us have. Unfortunately, this dream is being increasingly difficult to fulfil. But turning to Rent-to-Buy is not the answer.

The rising costs of properties and the rising costs of rent can make it impossible for a lot of Australian’s to even save enough for a deposit with one of our major banks. Rent-to-buy schemes may appear to solve this problem for many families. However, Home Buyers need to beware of such schemes before it ends up in court.
Even if a deposit is saved a bank can still refuse to lend you money if you have a bad credit history or your income is not high enough.

Many laws exist that restrict banking practices. These laws exist to protect consumers from what is called “predatory lending.” This means a bank cannot loan to people who are at risk of defaulting on the loan and simply charge a higher interest rate to cover the extra risk of default.

Australia’s major lenders typically abide by these laws and will turn down people that don’t make the minimum requirement for the loan or lending criteria.

For these people, sometimes they turn to Rent-to-Buy schemes offered by smaller companies. Sometimes without even knowing it is indeed a Rent-to-Buy scheme.

It is often said that renting is simply paying off somebody else’s mortgage. So paying rent with the expectation of actually owning your home in the end surely is better than renting. Right?

‘If it sounds too good to be true, it probably is’

Well, no. Typically, the “rent” or “instalment payments” are much higher than what rent should be.

And, wait for it… you do not actually own your home until you pay it all off! This could be in 30 years time!

If you default during this time, even if it’s been 29 years and 50 weeks, you may walk away with nothing.

People should stay far away from these schemes and should follow the old adage that,’If it sounds too good to be true, it probably is’. Sometimes the “lenders” do not use the words “rent to buy” and will say that it is like a typical mortgage.

For people who do get themselves involved in these schemes, the Court has the power to end a contract that is unfair and repair the damage caused by an unfair contract.

Vaarzon-Morel Solicitors recently won one of the first cases in the Supreme Court of New South Wales regarding rent-to-buy schemes.

We successfully represented a person who became involved in such a scheme. The “lender” wanted to kick our client out of their home and also recover money from being behind on the “repayments” and took our client to the Supreme Court in Sydney.

We successfully defended the “lenders” claim and argued that the court should set aside the contract and order the “lender” pay our client back the difference between what she actually paid and what she should have paid if she rented the property.

Fortunately, for our client, the Court agreed and found that the rent-to-buy scheme was, indeed, unfair.

If you are keen to learn more about the case click here for the full judgment.