Buy House from Landlord
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Buy House from Landlord
Andrew explains the process of buying your house from your landlord.
What happens if my landlord decides to sell? Can I buy my rental house from my landlord?
If the landlord you rent from decides to sell, depending on the terms of your tenancy agreement, they may serve you a Section 21 notice. That’s based on current guidance on the government website, which would require you to vacate the property.
A landlord could also sell the property with a tenant in situ. In this case, that would be yourself, and that would allow you to remain in the property and a new tenancy agreement would be drawn up with the new landlord.
You could approach your landlord and make an offer to purchase the property. The landlord may actually see this as more favourable than selling on the open market, because selling with a tenant in situ could be more difficult. Also, seeking vacant possession, i.e. getting the tenant out of the property,could take time and any rental void will cost them money.
So if that landlord is happy to sell, you could even buy under market value, at a discount against the full market value of the property. That discount could be used as your deposit, so there are definitely some advantages there.
What is the process of buying a rented house from a landlord in the UK?
Assuming that the landlord has now agreed to sell you the property as a tenant, the process would be more or less the same as a standard purchase. You would go and seek mortgage advice and establish affordability, and your advisor would research the right mortgage options.
We could then secure a Decision in Principle with the lender, as normal. You then formally agree to buy the property, we submit the application to the lender on your behalf and then solicitors will be instructed to carry out any relevant legal work. Upon completion, you take ownership of the property.
Can a landlord just sell the house you’re renting? What are my rights if my landlord wants to sell?
Your rights could change. As we speak in July 2024 there is a renters reform bill going through, but as it stands, during a fixed term tenancy the landlord would usually not be able to just simply evict you without cause.
You could normally only be evicted in certain situations, such as persistent rent arrears or anti-social behaviour. That said, if there is a break clause within the shorthold tenancy agreement from the outset, it may allow the tenant to be evicted if the landlord serves notice. But it has to be within the terms of that tenancy agreement.
How much notice must a landlord give a tenant when selling property?
Again, it depends on the terms of the break clause. If there isn’t one, it would usually be at the end of the tenancy agreement with the appropriate notice given.
So if you’re one month from the end of the tenancy, the landlord may have to give notice at that point for you to vacate the property. If there are any serious breaches of contract, such as rent arrears or antisocial behaviour, a Section 8 notice could be served. That could mean they could get you out of the property mid-tenancy.
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Can I buy a house from my landlord without a deposit?
It is possible, if the landlord is willing to sell the property at a discount, which does happen.
Sometimes the landlord has had a longstanding relationship with their tenant, who has been a good payer. To sell that property, they might negotiate a reduction in the purchase price compared to the true market value of the property.
For example, the landlord might agree to sell a property to the tenant for £180,000, but on the open market it’s worth £200,000. That £20,000 difference, or gifted equity as we call it, could be used as a deposit, which means the tenant would not necessarily have to put in any funds of their own to buy the property. That’s a big advantage.
Also, there is one lender in the market at the moment [podcast recorded in July 2024] where if you’ve got a good track record of paying rent, they could potentially offer you a mortgage without you having to put any deposit in at all.
It does, of course, depend on your personal circumstances. Affordability is based on your track record of rent and your income. The affordability could be quite tight, but it’s not impossible.
What are the costs of buying my rental property?
Typical costs would potentially include any mortgage broker fees or estate agent fees – if there is an estate agent involved. If you’re buying directly from your landlord, potentially you wouldn’t have that cost.
Stamp duty may be applicable, but if you’re a First Time Buyer who has never owned a property before, you could potentially benefit from stamp duty relief – meaning there’s nothing to pay on a property worth up to £425,000 [correct at the time of recording in July 2024].
There will also be some legal fees involved that you pay to the solicitor on completion.
What is a leaseholder?
A leaseholder is someone that owns the right to a property for a set period of time. If you’re buying a freehold house, which is probably the most common type of ownership, you would own the land the property sits on – and there’s no time limit on that.
Leaseholds tend to apply to flats, but it could be houses as well. With a leasehold agreement you’re essentially purchasing a right to occupy that land for a period of time, usually 100 years or more.
After that leasehold agreement ends, the ownership rights of that property would revert back to the freeholder. However, the leaseholder could extend that lease for a set period of time. At the moment, it’s 90 years for a statutory lease extension, but you could negotiate with your freeholder for a longer or shorter period than that.
There are some changes currently going through the government that suggest it may be extended to up to 990 years, but that hasn’t currently been put in place.
In terms of extending the lease, as it stands right now you do have to be a qualified leaseholder. You need to own the property for two years initially before you could extend that lease, but there is talk of abolishing this as well.
Once there’s less than 80 years left on that lease, it could cost more to extend it. If your lease has less at the moment, you may want to hold off to see if there are any changes from the government. However, if you’ve got more than 80 years left on the lease, it should be a low cost to extend that.
Can I apply to buy if I have rent arrears?
There’s not necessarily any barrier to applying to buy the property if you’ve got rent arrears, but the landlord would need to be willing to sell you that property whilst you owe them for outstanding rent.
In terms of mortgage availability, lenders may scrutinise the conduct of rent payments. So if you are in arrears, the lender may look at that and wonder if you could afford to pay the mortgage.
It would be a good idea if at all possible to clear those arrears before applying for the mortgage.
Do I have to complete the purchase within a specified time?
The landlord shouldn’t necessarily place any time restrictions on the purchase. However, there will be a validity period for your mortgage offer. When that expires, we would either have to apply to extend the offer, which some lenders allow, or potentially reapply again for a new mortgage offer.
Typically, offers are valid for around six months, but that does vary by lender. That’s normally ample time, especially if you’re buying from a landlord and you’re already living in that property. If it does go over that period, there are avenues to get you a new offer.
What happens if my landlord delays the sale?
Ultimately I think that’s a private conversation between tenant and landlord. I would suggest possibly just opening a dialogue with them, to find out what’s causing the delay and try and overcome that.
On the mortgage side it’s not something that the lender or an advisor would necessarily get involved with.
What if I want to remortgage?
Once you’ve taken ownership of the property from your landlord, you’re free to remortgage as you see fit. Some lenders do require a minimum six months of ownership before facilitating a remortgage, while others allow you to remortgage from day one.
It really depends on your circumstances at the time. I would advise you to get in touch with your mortgage broker as quickly as possible, and they could advise on this accordingly.
Can I sublet my home?
Potentially, but to sublet whilst a tenant you would need to agree that with your landlord.
Generally, that’s outside the scope of mortgage advice.
Subletting as a mortgage holder is a bit different. You would just need to seek Consent to Let from your lender. So if your circumstances do change and you need to vacate that property and rent it out, you would approach your lender and explain the situation to them.
If they’re happy, they’ll provide you with Consent to Let for a set period of time.
What are the pitfalls of buying a tenanted property?
Buying a tenanted property does limit your options. Only some lenders allow a property to be acquired without vacant possession. In this scenario, it would be somebody buying the property from an existing landlord. They have tenants in situ and the person buying the property is keeping them there. Some lenders allow that, some don’t.
What are the advantages and disadvantages of buying your rental property?
One advantage would be potentially buying that property with an agreed discount from your landlord, as we mentioned before. Quite often it’s more convenient for the landlord to sell to the tenant, so they are happy to provide some discount.
That discount could potentially be used towards the deposit or for the whole thing, which is great. Also, you don’t have the stress of moving. You already live there. You don’t have to pack up and move somewhere else. You’ve got the convenience of being in that property already.
How can a mortgage broker help here?
When considering buying a property from a landlord, a mortgage broker will guide you through the whole process from start to finish. We will identify lenders or schemes which may help the purchase.
Certain lenders allow you to use discounted or gifted equity towards a deposit. With other lenders you might be able to use your rental track record towards affordability. Get in touch with a broker as soon as you can. We’ll let you know the costs involved with buying the property, establish your affordability and also help you with the legal side of the process as much as possible, by liaising with the solicitors on your behalf.
Your home/property may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.
There may be a fee for mortgage advice. The precise amount of the fee will depend upon your circumstances but will range from £99 to £549, and this will be discussed and agreed with you at the earliest opportunity.
Asset Harbour Mortgage & Protection Ltd trading as Asset Harbour Mortgage & Protection are an appointed representative of HL Partnership Limited which is authorised and regulated by the Financial Conduct Authority.