Can Paying Off A Stranger’s Mortgage Pay Off For You?
Well, Wales’ rugby player Rhys Thomas thinks so. Sadly sidelined from the Six Nations due to a foot injury, at least the 20 stone prop forward can put his feet up and watch the action from his spacious, six-bedroom home. The house had been on the market for £560,000 but Thomas has the option to pay just £400,000 at any point over the next five years. He just has to pay the mortgage in the mean time.
It does seem a strange scenario but Rhys, his wife Paula and their four children are currently living in a house that they would not have been able to afford otherwise. So, it makes sound financial sense to them but how does it work?
The large, comfortable house in the popular Gwent town of Caerleon was on the market for £560,000. The stamp duty, deposit and associated fees would have come to somewhere in the region of £100,000 and Rhys freely admits that this sum was simply not within their means. Now though, he and his family are living in a big, beautiful home, complete with swimming pool and in close proximity to his children’s school. They just have to pay the owner’s mortgage, £1200 a month, which is a lot cheaper than it would have been to rent a similar property. Also, they have the option to buy at a fixed price of £400,000 at any point for the next 5 years.
Although it does sound a bit suspect at first, it’s all perfectly above board and has been given the stamp of approval by the original owner’s mortgage lender. It works for everyone essentially. The owner get’s to save on their mortgage by living somewhere else, Rhys gets to move his family into a big house with a pool in the perfect area and the mortgage lender is happy in the knowledge that the payments will be getting made each month. Should Rhys’ situation change and he decides not to take advantage of the option to buy at a fixed £400,000, he’s free to walk away at any point.
The original owners were on the verge of bankruptcy when their business collapsed and were left with about £40,000 worth of equity in the property that they were set to lose as part of the bankruptcy procedure. They put their home on the market at £560,000, where it remained for more than a year before being reduced to £520,000 and then to £499,000. However, due to the financial climate, prospective buyers could not get a mortgage. They then tried to rent it out but the tenant did not want to stay on past the 6 month lease.
The managed to pay off their outstanding debt and now have the ideal tenants; the rent covers the mortgage and is always paid on time as Rhys knows that if he misses just one mortgage payment, he forfeits his option. They know that Rhys and his family will look after the property like it was their own too, because the odds are that one day it will be. Also, if property prices rise over the next few years, he’ll be able to buy it for the fixed £400,000 and sell it at a profit.
That works for the owners too, as they were looking at losing their £40,000 equity in the property but now look set to get it back if and when Rhys decides to buy it. The risk of bankruptcy and repossession is a serious one so avoiding the circumstances that can take you there is the best option. Obviously, your financial situation can change without warning so should you find yourself facing severe debt problems, Debtsolver could help you find a solution. Visit www.debtsolver.co.uk for a free, impartial debt health check.
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