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Escape from the can&#39t sell, won&#39t sell trap

Mortgage advisers will be heartened to hear that figures from HM Land Registry show an overall house price increase year on year of 15 per cent. This news is a good indication that homeowners will continue to buy and sell – and will need new mortgages.

However, the total number of 232,548 property transactions in the period showed a 20 per cent decline on the same period in 1999. Mortgage introducers are having to work a lot harder to keep volumes up on their purchase business.

Some homeowners would love to sell their property and buy a new one but are held back by their circumstances. Help could be at hand from the rent-and-buy mortgage. This allows the purchase of a new property while retaining the original – which is then rented out to provide funds to meet the new mortgage repayments.

Rent-and-buy mortgages were invented in the early 1990s. They were designed to help people in negative equity move house without incurring debts of many thousands of pounds from selling their property for considerably less than the original purchase price.

If existing borrowers were obliged to move because of job or family commitments, they could arrange a rent-and-buy mortgage – allowing future rises in property values to wipe out the negative equity.

Now, the situation has travelled full circle. Property in some regions (for example, the South-east) has been increasing in value so quickly that homeowners may be reluctant to sell and move to an area with lower capital growth on property.

Eight regional development agencies were set up by the DTI on April 1, 1999, with a similar agency for London following this year. The more underdeveloped regions, such as the North-east, will be looking to attract businesses – and their staff – to relocate from the high-cost South-east.

For those who must relocate with their jobs to an area where property values are growing more slowly, the rent-and-buy mortgage is one solution. They can retain their original property and profit from rapid capital appreciation.

The rental income covers the mortgage while buying a property near their new job – retaining the option to return to live in their original property eventually if they wish.

The usefulness of a rent-and-buy mortgage is by no means restricted to those who are moving with their job. It can also be a viable solution in other circumstances. Some homeowners often have an overwhelming need to secure another property, even when they cannot sell their original home.

People may need to increase their living space for a variety of reasons. There may be a new baby on the way or a growing family needing extra bedrooms. Or maybe an elderly relative needs to move in.

In these circumstances, if borrowers find it difficult to sell quickly enough to secure their desired new home, a rent-and-buy mortgage means they can rent out the original property until the right buyer can be found. What they must remember is that a six-month tenancy lease will be in operation.

Similarly, the splitting up or scaling down of a household may benefit from a rent-and-buy solution. A divorce or marriage breakdown may leave the original occupants wanting to move out to separate accommodation very quickly.

A rent-and-buy arrangement will provide a breathing space while their financial affairs are sorted out. A couple whose children have grown up and left home may also wish to swap their family home for something more suited to their lifestyle – perhaps a smaller property with some land ora bungalow.

Their dream home may not come on the market for some time. A rent-and-buy mortgage could help to secure the desired home quickly, while renting out the old one to keep paying the mortgage on itfor the medium term.

Whatever other special circumstances prevail, the breakdown of a chain of sellers and buyers inevitably causes extra disruption, cost, administrative work and stress to everyonein the chain.

Prudent use of the rent-and-buy solution where the chain threatens to break down could often save the chain without anyone suffering financial or other disadvantage.

The rent-and-buy option is not very widely known but it offers a highly effective solution for those unwilling or unable to sell their original property before buying another one.


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Citibank – Citibank Accumulator

Thursday, 12th October 2000.Type: Monthly interest savings account.Minimum-maximum investment: Minimum £5,000, no maximum. Interest rates: 6.5 per cent gross.Term: None.Offer period: Until further notice.Withdrawal penalties: None.Tel: 0800 008900.

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