Sale And Rent Back Schemes
Do you live in the UK? Are you struggling to make your mortgage payments? If yes, a sale and rent back scheme may be the right option for you. In the UK, a number of private companies offer this scheme to homeowners. A private property company may refer to a firm, a broker or even an individual. In fact, this option may be appropriate for people who are experiencing financial pressures, old people and those that want to urgently dispose their homes. Though the scheme may be considered as a solution to the financial problems you are currently facing, it is important that you are aware of its implications prior to opting for it.
The financial Conduct Authority (FCA) has been regulating firms offering property sale and rent back schemes since June 2010. FCA’s rules are designed with a view to protect consumers from high-pressure as well as inappropriate sales and also help them have a clear understating of the various sale and rent back products that are offered by private firms so that they can confidently choose one that meets their requirements the best.
Further, private firms that offer sale and rent back schemes have to comply with certain FCA stipulations related to the amount of capital held by them, employment of effective controls and systems and professional indemnity insurance. This also ensures that the individuals associated with these firms are fit and proper’.
Therefore, you should check and find out if the name of the firm you are planning to work with is included in the Financial Services Register which is available on FCA’s website (www.fca.org.uk).
Rules To be Followed by Sale and Rent Back Firms
Some of the key rules to be followed by firms involved in sale and renting back are as follows:
– They should not deliver promotional leaflets by way of your letter box
– They must verify whether you have the capability to enter into such an agreement and how it can affect your entitlement to other benefits
– They are required to give you at least 5 years fixed term tenancy
– They have to independently arrange for a valuation of your home, in case it has not been already arranged by you
– They are bound to provide you with 14 days cooling-off period to make your final decision as to what you should do.
Sale and Rent Back Scheme – What Is It?
A sale and rent back scheme, also referred to as a buy back/sale and lease back scheme, run by private firms involves selling your home to the firm and then renting it back as a tenant. Typically, you would sell your home at a discounted price to the firm. It is important to note that these schemes are not the same as mortgage rescue or homelessness prevention schemes that are offered by social housing landlords.
Private firms offering the sale and rent back schemes often offer to buy your home at 80% of the prevailing market rate. The firms pay up all the fees and costs involved and then rent out the property to you at the prevailing rental rates. Some firms may rent out the property at a rate that is less than the mortgage instalment you have been paying.
Sale and Rent Back Schemes – What To Look For
The first and foremost aspect is that you should opt for this scheme only if you have determined to your satisfaction that other options will not be of any help to you. This is because these schemes can be risky for several reasons. However, if you planning to go ahead with this option, you must go through the firm’s terms and conditions with a toothcomb. Here are a few important aspects you should look out for:
#1: Price Offered
Private firms often offer to buy your homes at a price that is below the currently going rate in the market for a cash price. This means that you could lose some money in the deal. Therefore, you must explore the possibility of selling your property and finding an accommodation on rent on the open market. This way you would generate more money out of the sale. This would enable you to clear off your debts and probably have some money at hand. Moreover, if the price offered for your home by the private firm is less than the mortgage payment you owe, your lender may not allow you to sell your home.
Signing up for a private sale and rent back scheme does not safeguard you against eviction. You are likely to be evicted if:
– You fail to comply with the terms of the tenancy agreement such as falling behind on payment of rent, rent increases, etc.- Your new landlord faces financial difficulties and the property is repossessed by another party to whom the landlord owes money to.
Finally, your landlord can evict you at the end of the fixed term tenancy period, even if you have not done anything wrong at all.
#3: Entitlement to Benefits
You may lose your entitlement to housing benefit if you sell the home and continue to live on rent in the same property. Further, if the council determines that other options for keeping your home were available, then also your application for housing benefits may be rejected. Signing up for a sale and rent back may also affect your entitlement to other benefits such as income–related Employment as well as Support Allowance and income-based Jobseeker’s Allowance.
Therefore, it is very important that you seek professional advice before signing for this scheme as a means to resolve your financial problems.
Summarizing, you should resort to signing for a sale and rent back scheme offered by private property firms only if you have determined that all other options cannot bail you out of the financial crisis you are going through. In addition, you should ensure that you are working with a regulated property company that has put in place proper complaint management procedures so that you can prefer a complaint if something goes wrong. If the company does not resolve your complaint to your complete satisfaction, you can make use of the free Financial Ombudsman Service.