What do ‘sell and rent back‘ property schemes do?
The idea is that a company buys your property, which you then rent back from them long term. You don’t have to lose your home when you get in trouble with your mortgage. In principle, a sound idea, or is it?
Before the economic slow-down sell and rent back schemes were relatively low key, not particularly common in a healthy, strong property market. But since the property market started to collapse, sell and rent back providers have been finding fertile ground.
Sell and rent back schemes started to raise concerns back in October ’07 when the Citizen’s Advice Bureau (CAB) flagged what appeared to be a growing problem. So much so that the schemes were labelled a disaster waiting to happen. Sell and rent back companies were increasingly paying less than 60% of the value of homeowners’ properties. And, taking advantage of consumers who were too distressed to think straight, some were giving nothing more than a standard six to twelve month tenancy in return.
Since Northern Rock first kicked the UK economy into a downward slide the number of companies offering sell and rent back has rocketed. Just do a Google search and you’ll see the evidence. Some are large firms who offer decent guarantees, others are small outfits searching for bargains and distress buys. But whatever size they are, most operators don’t offer a long term rental guarantee. Far from it. In fact many former homeowners have found themselves evicted once their Shorthold Tenancy Agreement expires.
The charity Shelter and the Council of Mortgage Lenders added their voices to the CAB’s concerns and the Office of Fair Trading (OFT) launched an investigation in response. John Fingleton, the OFT’s Chief Executive, explained, “Our research shows that sell and rent back deals have potential to cause serious and permanent harm to often vulnerable homeowners. The unfamiliar and highly pressurised situations that these people find themselves in may leave them particularly vulnerable to misleading statements or valuations from sale and rent back firms looking to make a deal.”
Unlike many financial service suppliers, sell and rent back schemes are not regulated by the Financial Services Authority (FSA). So consumers have little protection against unscrupulous suppliers. Citizens Advice is currently calling for new official regulation covering sell and rent back firms, before the problem gets a lot worse.
In October this year (2008) David Harker, Chief Executive at CAB, said “While sale and rent back agreements might be the right thing for some people, consumers need the sort of robust and binding safeguards that only statutory regulation is likely to provide. With more people seeking advice about mortgage arrears we are concerned that these safeguards should be put in place as soon as possible.”
In the meantime? Unless you’re determined to sell and rent back – or you have a rock solid deal in writing, checked by a solicitor – don’t. There are better ways to solve your financial problems without resorting to an unregulated product that currently has a very bad reputation.
Things to consider if sell and rent back is what you want:
- Many providers offer 75-90% of your home’s market value but end up offering a lot less. Stick to your guns.
- Get full and complete tenancy details in writing and have them checked by a solicitor so that you know you are legally entitled to live there for the long term.
- Make sure your rent is agreed in the long term. Some sell and rent back providers have put rents up so much that tenants have been forced to move.
- Ensure that you have clear advice and evidence about what happens to your tenancy if your new landlord goes bust
- Don’t panic and rush into it. Your mortgage lender should be open to negotiation and they’re under instruction from the government to be flexible about mortgage arrears. Try all other avenues first.
- Take advice from an expert: visit your local Citizens Advice Bureau.
It would be great to hear from anyone who has been involved with sell and rent back schemes.