In the last VFI News I outlined my thoughts on the future of the Rent To Buy in the consumer/residential property marketplace. It boiled down to; ‘The authorities/regulators are not going to continue to allow unregulated consumer home buying arrangements and, as a consequence, Rent To Buys will either become regulated by the National Credit Code or legislated out of existence.’
A Lead Balloon Springs to Mind 🙂
My conjecture on the future of the Rent To Buys (RTB) was met with strong support for the RTB in some sections of our vendor finance industry. Most comments in support of the RTB revolved around its flexibility and cost advantages. Along with comments on the value, or not, of regulation overall.
I have to admit, the RTB is flexible and comes with cost benefits. However, after witnessing the mostly unregulated mortgage broking and vendor finance industries of the past, I’m not opposed to regulation of the consumer credit market. And I must admit to an improvement in the ‘bottom line’ of our vendor finance business, since the National Credit Code (NCC) forced us to improve our business practices.
However, for our business, it would be disappointing to have a situation where there is no access to some form of vendor finance technique that includes a rental trial period as part of its structure.
What Could a RTB Alternative Look Like?
Let’s imagine for a moment that the RTB disappears. How could our business ever assist, for example, a small business couple into their own home? A couple who we believe are doing well but just can’t get over the line, into an Instalment Contract because of Responsible Lending requirements.
Let’s see what the Chairman of Century 21, Charles Tarbey, has to say. While it’s a great interview in total, the bit we’re talking about runs from 5:30-6:30.
The Rental Purchase Plan
The last State government to get rid of their Rental Purchase Plan was Queensland in 1996. We stumbled across the idea independently when we decided to not use RTB’s in our business but came across the business couple mentioned above. The ones we couldn’t get into an Instalment Contract due to Responsible Lending.
How we devised our own Rental Purchase Plan is outlined in this VFI News issue.
Pluses & Minuses
Our first try at a DIY Rental Purchase Plan failed because we didn’t carry out Responsible Lending checks before we entered into the Memorandum of Understanding (MOU). For our second try, we did full Responsible Lending checks on our business couple and they saved more than double the amount specified in the MOU during the 6 months savings period. They’ve rolled into an Instalment Contract and are very happy home purchasers.
And for those who are not great fans of regulation, a DIY Rental Purchase Plan like the one outlined here, is unlikely to be regulated by the NCC until the Buy section of the Rent Save Buy process 🙂
Of course, don’t rely on my opinion. Please check with your solicitor.
Client First – Always.