Many property companies in the UK are pitching sale and rent back schemes to homeowners. This scheme gives a chance to the homeowners to sell their property and rent it back. Property companies target those who are financially stressed, older people as well as others who want to sell their houses quickly. On the face of it, you may find the scheme to provide a solution for your current financial problems or it may seem to be appropriate for you in a specific situation. However, as a homeowner, you should be aware of the implications of the sale and rent back scheme before entering into any such arrangement with a property dealer.
What is A Sale and Rent Back Scheme?
Property companies that offer this scheme purchase your home for a value that is less than prevailing market rate. Typically, they offer up to 80 per cent of the actual value. The companies pay all the costs and fees that are involved. The property is then rented back to you at the prevailing rates in the market. Sometimes, the property company may rent out the house to you at a rent that is lower than the mortgage instalment.
You can use the cash to settle your outstanding mortgage payments while remaining in your own home. Further, some property dealers provide you with an opportunity to buy back the same property, at a later date, at the prevailing market rates.
What Are the Associated Risks
When you sign up for a sale and rent back scheme, you should be aware of how this arrangement will affect your housing as well as your financial situation in the future. Some of the risks associated are listed below:
• You will not own your home anymore.
• If there is a fixed term for your tenancy, you may be forced to leave your home after the term. It may also happen that the rent may be increased anytime during/after your tenancy period.
• If you are unable to pay your rent, you may be evicted out.
• If the company that you are dealing with falls into financial difficulties, your property stands the chance of being repossessed and you may have to move out.
• You always end up getting less money than your home’s worth.
• The fact that you are selling your home for a lower rate may jeopardize your chances for claiming any form of insolvency.
• It is important to assess the reputation of the property dealer who offers a sale and rent back scheme. Find out whether the dealer has been authorised by the regulatory authority or not.
Look Carefully Into Alternatives
If you are facing problems due to debt, and you need to sell your house quickly, then it is a good idea to speak to your mortgage lender. A cheaper offer may be available or you may be able to switch to an interest-only loan or even delay repayments so that you get more time to sell.
It may be of help to seek help from debt advisers. You can get them to deal directly with your lenders and work out an arrangement that may help you out for the present.
Checking out government schemes can help you find out if you are eligible for any benefits.
It is a good idea to put your house for sale in the open market and move to another place on rent. In case you are over 55 years of age, it is worthwhile to check if equity release options are available from your property which will allow you to stay on in your property.
When It Is the Only Available Option
Before signing the agreement, ensure that it is the correct option for you. Understand the terms and conditions and its long-term implications. Ensure that you are transacting with a firm that is authorised by the Financial Conduct Authority. In case you are given wrong advice by the firm that you are transacting with, you have the liberty to complain to the Financial Ombudsman Service.
It is important that the firm you are dealing with should give you all details as regards the charges and the different schemes that they have on offer. When a specific scheme is recommended to you, all key details regarding the scheme should be informed to you in a printed format. You can use this document to compare details of different property dealers who offer sale and rent back schemes. At this juncture, you can check to confirm if you are eligible for government benefits when you opt for such a scheme.
An FCA authorised company must offer a fixed term tenancy (for a minimum period of five years). Such a company would also give you a window period of 14 days to take a final decision on the matter.