Mortgage calculator: is it better to rent or buy?

Should any aspiring buyers walk past this scruffy sign on Wilmot Street in Bethnal Green, East London, their first response will be curiosity, their second mistrust, for what kind of seller markets his property using dog-eared cardboard and a permanent marker pen?

Brian Hughes's advertisement will certainly intrigue aspiring homeowners who are feeling unloved by lenders right now. Hughes says that the notice has attracted a lot of interest but, in the two months that it has been up, he has still not found a buyer, perhaps because candidates are rightly worried about signing a contract with someone they do not know who could run off with their cash.

However, anyone who decides to inquire will be tempted, for Hughes, a part-time property developer and frustrated seller, is asking for only a minimum 3 per cent deposit - equal to £6,600 on the £220,000 onebedroom flat that he is offering. This compares very favourably with deals on offer from mortgage lenders, who want at least £22,000 before they will offer anything like an affordable rate of interest.

Hughes is offering a scheme called “lease option”, also known as “rent now, buy later” or “rent to buy”. It is becoming more popular with landlords who want to shift properties quickly. The buyer and seller agree a price and a future purchase date.The buyer then pays rent, in this case at £950 a month, and monthly instalments of about £300. The initial deposit and cash built up from the instalments is then used as a deposit to buy the home with a mortgage on the pre-agreed date. The advantages are that the buyer will make a profit if the property value rises. If the buyer still cannot get a mortgage, he or she can sell up and benefit from any increase in value. Considering it? Be warned: the big “but” is that at the time of the purchase mortgages could still be scarce, your finances may still be tight and house prices may have fallen farther. Crucially, the instalments are non-recoverable, so if you have to sell and the sale price does not cover the total value of the instalments you had paid, you could lose the lot.

The terms of Hughes's deal are complicated, so independent legal advice is a must. Still, the flat is in a super-desirable location, within walking distance of the City, Brick Lane and Columbia Road flower market. For more information, call Brian.

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