Rent-to-buy coming back?

Question from Rachel updated on 22nd December 2013:

With the new LVR restrictions affecting first home buyers I can see that rent-to-buy schemes could come back to the market. What is your view on these? I know in the past that they have been heavily weighted in favour of the investor and sometimes the tenant buyer has been left in the lurch but what if there was a fairer system? Do other investors like the idea of helping people out and getting cashflow over capital gain? I've heard lots of mixed reports so far.

Our expert Kris Pedersen responded:

Hi Rachel, rent-to-buy systems as such are great and work well if conducted ethically. The issue has more been that some of the people doing them have been crooks or at the least operating unethically that has given them a bad name. I look at them very much as a financing play and my initial thought are that they work better in down turns as I think non-bank lenders (Resimac for example are doing 90% lending at pricing similar to the banks) and combination loans 80%/10%, 90/5% etc will fill a lot of this gap at the moment. Be aware that if you go down this track you want to get very solid legal advice as I believe the commerce commission is very against them (search 'commerce commission rent to buy' online to see more info). Regards, Kris Pedersen

Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies.

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