When you are in a situation where you are struggling to pay your mortgage but don’t want to move home, you could consider a sale and rent back scheme to stay in your home. The sale and rent back industry has received a huge amount of criticism over the years because of the risky nature and potential downsides, so it is vital that you properly understand how they work and what is involved before deciding if it is the right choice for you.
This guide covers everything you need to know about sale and rent back schemes, including what they are, how they work, and the risks involved.
What is a sale and rent back scheme?
A sale and rent back scheme is when you sell your property for a discounted price, but can continue to live in your home as a rent-paying tenant for a fixed term. Sale and rent back companies will buy your home from you, and then essentially become your landlord for the set length of time that you have agreed to stay living there.
It can be a tempting option if you are struggling to make your mortgage repayments or other debt commitments and are at risk of losing your home through repossession. A sale and rent back scheme can help you to clear your mortgage or other debts, while also staying in your home for a fixed amount of time, but they do come with other risks.
Sale and rent back schemes can end up being very costly and a big risk to your financial situation. It is important to explore every option available to you before deciding if a sale and rent back scheme really is the right option for you.
How does a sale and rent back scheme work?
Sale and rent back companies will always buy your home for less than the market value, in return for allowing you to stay in the property after you have sold it to them. This means that it is highly likely that you will be losing money on your initial investment. You will need to pay rent to the company while you continue living in your home, and these schemes are usually based on a fixed tenancy term agreement.
At the end of this fixed term, if the company no longer want to rent the home out to you, then you can be forced to move out as you are technically no longer the homeowner. As well as selling your property for less than it is worth, you will also have to pay out rent to stay in your home, which can make these schemes very pricey in the long run.
All sale and rent back schemes should be regulated by the Financial Conduct Authority (FCA). Before choosing a provider, double check they are regulated by the FCA as it is a criminal offence for a scheme to operate if it is not registered.
What are the risks of sale and rent back schemes?
Sale and rent back schemes can help you to get out of a difficult situation if you find yourself struggling to pay your mortgage but don’t want to leave your home. They are not without their risks and downsides, and you should be fully aware of all the risks involved before going ahead with a sale and rent back scheme. The main risks are:
- You will no longer be the owner of your home, and the sale and rent back scheme provider will own your property.
- You will have to pay rent to stay in your home, and this rent could go up at any time if your landlord chooses to change it.
- You will be renting your home on a fixed term tenancy, at the end of this fixed term you could be forced to leave your home.
- Your landlord will put some rules in place that you must follow while you are renting your home, and if you break these rules, you could be at risk of being evicted.
- If the sale and rent back scheme provider that buys your home ends up in financial trouble, then the property could be repossessed, and you will be forced to leave.
- When you sell your home to a sale and rent back provider, you will probably be selling for less than the property is worth, and you could often get more if you sold it on the open market and moved out.
If you do sell your home at a discounted price because of a sale and rent back scheme, then you could affect your eligibility for bankruptcy at a later date if you continue to have financial difficulties.