buyabetterhome.co.uk
thisismoney.co.uk
financemarkets.co.uk
bbc.co.uk
moneysavingexpert.com (Image courtesy of bbc.co.uk
and propertysituation.com)
Further Reading
bbc.co.uk (BBC News article)moneysavingexpert.com (A warning from Martin Lewis)
Sale and Rent Back Schemes
Why Sale and Rent Back
The companies that run these schemes heavily promote their ability to complete in a very short space of time, as little as one week if necessary, and they will pay all the legal costs involved. It’s easy to see the attraction for overstretched homeowners, being able to release the equity in your property almost instantaneously, allowing payment of debts and peace of mind.
The Drawbacks
The main problem with this scheme is the fact that the companies involved will not pay the seller the market rate, typically around 70-90% of the property’s value. This is widely perceived as making money out of people’s misery but their argument is that the vendor would only receive about 85% of the asking price in a private sale.
Sell to rent back companies; public service or parasites feeding on the vulnerable?
Another argument for not entering into a sale-and-rent-back agreement is that the companies that offer it are not regulated. Some will undoubtedly provide a good service, in order to protect their reputation but the fact that this industry is not regulated will attract unscrupulous operators. Consequently, guarantees given at the time of sale in regard to the term of tenancy and rent levels may not be honoured.
A Fair Price?
Although sale-and-rent-back companies claim to pay between 70-90% of the market value, this figure is taken based on a basic valuation of the property’s worth. This does not take into account the 5% figure that estate agents will automatically add onto the asking price when marketing a house. According to the property information group Hometrack, the average sale price of a home in England and Wales is around 96% of the asking price. If the Hometrack figure is correct then that makes the sale-and-rent-back option look even less appealing. It also makes a nonsense of the claim that the vendor will probably only get 85% of the property’s value in a regular sale.
Who are the Players?
Companies that offer the sale-and-rent-back scheme use it to get property at a bargain price with a guaranteed tenant. Some operators are big property groups with lots of resources, others are simply ambitious buy-to-let investors. The sector has grown strongly in the last few years and is now estimated to be worth around £2.5 billion a year. Defenders of the industry say that it helps 20,000 people per year avoid repossession.
A Slating from Shelter
Adam Sampson, the chief executive of the housing charity Shelter has described some of the companies operating in the sell-and-rent back sector as “rip-off merchants”. He has stated that some firms pay sellers only half the market value for their property and do not honour promises that they can stay in the home as tenants for life. Mr Sampson also said that the scheme does not always protect the homeowner from repossession because there have been instances where the sale-and-rent-back company has not even been able to keep up the repayments. Shelter is among bodies that have been calling for the industry to be regulated, so that those entering into an agreement will see a fair price for their homes. The National Landlord’s Association is currently drawing up a voluntary code of practice for the industry, which is expected to come into practice in April.
Other Options
If you have money problems and you have no choice but to sell up and move, then that is fair enough, but only use a sell-and-rent-back scheme as a last resort when you have explored every other possible avenue. For example, it may be possible to open a dialogue with your mortgage lender. They do not want to repossess your house as it is a complicated process for them, at the end of which they are unlikely to realize the true market value of the property. Chances are they will agree to switch the loan to a cheaper deal (interest only for example) whilst you sell your house on the open market. You may even get a better price by going to auction.