With rising interest rates and bad debts, many homeowners are turning to the ‘sell-and-rent-back’ schemes to help their overstretched finances. Despite having to sell their property at a knock-down rate and rent back at market rate, increasing numbers of people are looking to these schemes as a quick and easy way of reducing their debts and giving their finances a helping hand.

In this guide, we look give an overview of sell-and-rent-back schemes and list their advantages and disadvantages.

What is sale and rent back?

Companies operating a sale and rent back scheme buy your house off you, generally for 70-80% of it’s market price and pay all the costs and fees associated with house sales, and then rent the property back to you at market rates. Sometimes the rent will be slightly less than market rates, especially if the mortgage payments were less than the market rent amount.

The homeowner can then use the money from the house sale to pay off the remainder of the mortgage and settle any outstanding debts whilst remaining in their home. Some companies will offer the the homeowner the chance to buy their house back at a later date at market value.

Why use sale and rent back?

On first glance, it doesn’t look like an attractive option – having to sell your house for thousands of pounds less than it is actually worth. However if you are facing repossession, it’s a quick and easy way of settling the debt without being evicted. Those with large debts can also see it as an easy way to get their hands on a lot of money to help sort out their debts.

Many companies will offer the opportunity to complete on the house purchase within a week, and most will pay all the legal fees and costs associated with the purchase – another attractive feature of the scheme. Most companies will also tell you that the scheme is discrete and neighbours and family do not need to know that there has been a change in ownership of the house as the homeowner and their family do not move.

What are the drawbacks?

The first, most obvious drawback is that the homeowner will not be getting full market value for their property and yet rent may be about the same as their mortgage payments. There is often no guarantee about long-term tenancy security or rent levels – some owners have found that after 6 months, they are asked to leave their tenancy.

There are many good, established firms in the market, however there are also those who are just there to make a quick buck. The market is currently unregulated so it can be hard to pick a company to deal with. Service levels will vary wildly between companies.

Are there any alternatives?

If you need money, fast, you may not have any other option. However if you need a quick sale due to debt problems, it is worth speaking to your mortgage provider as they may be able to help you find a cheaper deal, switch you to an interest-only product, or be able to work out a payment holiday with them. They may also let you delay repayments until the house is sold, giving you a chance to sell the house on the open market and therefore probably get a better price than if you went with a sell-and-rent-back scheme. Mortgage lenders tend not to want to repossess houses as it is a complicated, expensive process and they are unlikely to get back the property’s true value so they should be keen to help you come to a compromise.

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