During the current decline of the UK property market, there has been a sharp rise in what are commonly known as sale and rent back ‘schemes’. Note that I highlight the word ‘scheme’, as to associate something as being a ‘scheme’ is usually giving it a negative description before it has even been fully evaluated.
You have probably seen adverts on national television, leaflets through your door, and adverts in the national newspapers, with companies offering to buy your house at a below market value price, and offer you the opportunity to rent it back for a given time period.
These ‘schemes’ often have a bad reputation, but what I am questioning is whether this reputation is justified or not? In this article I am going to address the pro’s and con’s of sell and rent back ‘schemes’ and offer homeowners an independent, non-commercial viewpoint. Therefore, they can make a decision for themselves whether it is a road they wish to go down!
First of all, let’s look at how sell and rent back schemes work. A sale and rent back company will offer you a fast house sale, and usually for cash, and then offer you the opportunity to rent back your property on an assured short hold tenancy agreement (AST). This agreed tenancy must be made for a MINIMUM OF 5 YEARS. This rule was introduced by the FSA and came into effect on 30 June 2010, “designed to protect homeowners in financial difficulty from falling prey to predatory companies” (BBC News, 29th Jan 2010).
It is also very common practice for the sale and rent back company to pay all of your valuation fees, solicitor fees and legal fees.
There is of course a reason for the sale and rent back company to purchase your property, they will want to make a profit from the purchase. This may be based on a predicted future valuation of your home, or by offering you’re a below market value price, or often a combination of the two.
The Main Advantages Of Using Sale And Rent Back …
The great advantage to most homeowners opting for a sale and rent back, is the fact that they can stay in their homes. If a homeowner is facing financial difficultly, needs to release equity, but doesn’t wish to vacate their property, then a sale and rent back service may be the solution to their needs.
What Are The Potential Drawbacks In Selling And Renting Back …
The main risk in sell and rent back that you will uncover is the company that is buying the property will buy the property at below market value price. This amount is generally around 75%, but may vary depending on market fluctuations, and some of the more unscrupulous companies may even offer considerably less than this.
The second worry that a homeowner may have is the market rent. The rent should ALWAYS be negotiated before the sale and rent back agreement is processed, and any yearly increase over the term of the tenancy should also be written in the agreement.
Another potential drawback is if the sale and rent back company is not a cash purchaser, and opts to buy the property with a mortgage, if they fail to pay the mortgage for whatever reason the property will become repossessed and sold.
It is also often the case that you will be unable to claim housing benefit following your sale and rent back, for up to 5 years.
To conclude, I leave it to the homeowner. Sell and rent back is not a great solution for some homeowners, but for others it saves them from going into repossession, helps them release equity for retirement, or gives them a quick cash sale and leaves them time to find a new property after the sale.
Be sure to do your homework on a sale and rent back company, and make sure you know all the facts before you sign anything!