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Financial Services > Mortgages > Mortgage Rescue Schemes > Mortgage Rescue Schemes

Sale-and-rent-back schemes


Sale-and-rent-back schemes

What are sale-and-rent-back schemes?

Sale-and-rent-back companies typically focus on homeowners who are having difficulty making their mortgage payments, and who are facing repossession.

These firms buy people's homes from them at much less than their market value - and then rent those homes back to them at market rates.

The sale-and-rent-back company concerned will generally bear all fees and costs - but don't think this makes it a risk-free option.

The homeowner-turned-tenant can then use the cash he or she receives to try to clear their mortgage and debt commitments.

Some firms also claim to offer tenants the chance to buy their homes back - at market rates - at some point in the future.

You need to look at sale-and-rent-back closely before taking the plunge: You could just be swapping one bad situation for another.


The benefits

If you're worried your home may be about to be repossessed, sale-and-rent-back may seem like an attractive option.

The firms emphasise how quickly, simply and painlessly the whole thing can be sorted out. The payment and handover can sometimes occur in a week or less, with the company taking care of all the legal costs and fees.

Many companies also promise complete discretion, so you could be tempted to take this route if you don't want your friends and neighbours to know about your financial difficulties.

And firms also highlight the benefits of staying in the same home (for example, your children being able to continue to attend the same school and you remaining near your work, family and friends).

However, as a tenant you lose the right to stay in your home as long as you like - and there may be a number of restrictions placed on you. 


Risks and drawbacks

There are several serious risks to be faced if you decide to get involved in a sale-and-rent-back arrangement. The two main ones are:

Poor value: To maximise their profits, these firms typically give homeowners much less than their property is worth.

As a seller, you may receive just 60-70% of the market value of your home - or even less. And as a tenant, you'll then end up paying the equivalent of the new owner's mortgage.

Sale-and-rent-back firms target vulnerable people in serious financial difficulties, and will exploit their desperation to drive down the selling price of the property.

Lack of security: Many sale-and-rent-back companies imply that tenants can stay in their homes for a long time after they've sold them. Some even suggest they can stay as long as they want.

In recent years, the sale-and-rent-back industry suffered from a lack of regulation, and many companies exploited tenants in this respect.

Despite the assurances, many ex-homeowners were suddenly evicted after as little as six or 12 months - either because the company wanted to sell the property, or because it wanted to bring in tenants capable of paying higher rents.

In June 2010 the Financial Services Authority (FSA) introduced rules meaning that anyone who swapped home ownership for a sale-and-rent-back tenancy would be guaranteed a tenancy of at least five years.

However, some unscrupulous sale-and-rent-back firms will still try to take advantage of tenants in other ways.

In some cases, the sale-and-rent-back companies went bust or sold the firm to someone else, meaning the tenancy instantly came to an end and the former owners became homeless.

If you become a tenant under one of these schemes, it's crucial you understand exactly what your legal rights are.


Other options

Sale-and-rent-back should only be undertaken as a last resort. Before you get involved in this sort of arrangement, carefully consider all the other options open to you. For example:

Talk about it: Speak to your existing mortgage provider, and be honest about the fact that you're having difficulty making repayments.

Repossession isn't a very attractive option for lenders (it can be expensive and complicated). You may find you're able to switch to a cheaper repayment plan - for example, an interest-only deal.

If you have other debts as well, speak to a free, impartial debt counsellor: The Consumer Credit Counselling Service (CCCS), your local Citizens Advice Bureau and National Debtline are all good places to start.

Rent out your home: Another alternative is to rent out your home (making sure the rental income covers the mortgage payments) and become a tenant in another, much cheaper property. Maybe you could share with someone else or move in with your family or friends while you get back on your feet.


Find out more

If you want to find out more about sale-and-rent-back schemes, read this guide from the government's Money Advice Service.

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