In Australia, there are a lot of people migrating from other countries. This leads to an increase in the price of houses or properties. So a common middle-class man can only dream of owning a house in his life time. It becomes very difficult to save money and buy an own house. Like any other rental agreement, renting to buy our home is not of a much difference. Even then, there is a huge dissimilarity – when one opts for rent-to-buy, a fraction of the money he spends every month on rent, is diverted towards possessing that home. Nearly twenty to thirty per cent of the money spent on rent goes towards the price of the house. The rent-to-buy contract can be designed in such a way that a portion of the money paid on rent goes towards purchase as an initial payment to secure a mortgage. In still other instances, the rental agreement may work towards the absolute procurement of the property over a stipulated time.
Wrapping
Considering the above factors, one may prefer buying his own house under a ‘rent-to-buy’ scheme. These schemes are becoming popular in Eastern Australia and frequently promoted at conferences as get-rich-quick schemes. They are termed as ‘wrapping’, but this is also replaced of late with ‘lease-options’. This ‘wrapping’ is when a house is sold by equal installments, quite often for a long time, on a ‘rent-to-buy’ contract. But then buyers are beleaguered by these systems. They do not qualify for finance with home loan providers as well. The buyer is left at high risk under this scheme, as title does not get transferred until one makes payment in full settlement. If the buyer due to any reason fails to repay on time, he is at risk that he will lose all the installment payments made. However, these contracts do no legally bind in Southern Australia. Any contract which, before full settlement of property, attracts payment of part of the purchase cost of property is null and void. This infers that one could recover any such installments by taking the matter to the Court of Law.
Amortization
A prescribed contract for sale of land between owner and buyer, with an amortization schedule, is the instalment terms contract. This is mainly to work out principal and interest schedule between the owner and buyer of the house being sold.
Property alert
On 22nd February 2008, Fair Trading Minister, Linda Burney, New South Wales, issued a warning to aspiring NSW home owners not to be enticed by the deceitful rent-to-buy scheme. She said, “In a time of increasing interest rates and high rents greater numbers of aspiring home-owners are turning to alternative means to buy a home”. “Rent to buy schemes, also known as vendor finance or wrapping, offers the option of buying your own home with a very small deposit without the obligation of having to take out a mortgage. The remainder of the loan is paid as rent until the loan is paid off,” she added.
Legal binding
If, for any reason, a person discontinues paying the rent as per the contract, the owner may take it to Court and get back any rent paid that would be in excess of the fair market rent for the houses. Contracts for the purchase of property by equal installments are not legally binding in South Australia. The Office of Consumer and Business Affairs is anxious about these practices that are up coming in South Australia. Even though these rent-to-buy schemes target low income a group, the hope is still there that these folks can see their dream come true.