Can I sell my home and rent it back?
If you’re struggling to afford your mortgage, you may have considered a sale and rent back scheme. Under this sort of scheme, a property would be sold to a property investor and then be rented back to the former owner. Sale and rent back schemes have traditionally been aimed at homeowners in financial difficulty. Properties would usually be bought for significantly less than market value, usually around 60-70%.
Can I sell my home and rent is back?
The sale and rent back industry was temporarily halted in 2012, following an investigation by the Financial Services Authority (FCA). As a result, there are now very few companies that offer a sale and rent back service, and any that do so must be registered with, and monitored by, the Financial Conduct Authority (FCA).
Anyone wishing to use a sale and rent back scheme should do so cautiously. The FCA study found that the majority of sale and rent back cases were either unaffordable or unsuitable and should never have been offered. They also voiced concern about sale and rent back companies using high-pressure tactics to target vulnerable homeowners.
History of sale and rent back schemes
2007: Concerns were first voiced about the sale and rent back sector in October 2007. The Council of Mortgage Lenders said they were worried about the way homeowners were being targeted and the conduct of the companies running the schemes.
2008: In 2008, the Government asked the Office of Fair Trading (OFT) to investigate the sale and rent back industry. In October of the same year, the OFT suggested that sale and rent back schemes could cause serious harm to vulnerable homeowners and made a recommendation that the industry should be regulated by the Financial Services Authority (FSA).
2010: By 2010, any company wanting to offer a sale and rent back scheme had to be authorised by the FSA. Once by industry became regulated, sale and rent back companies were required to follow strict rules.
- Companies were no longer allowed to do any direct marketing to homeowners, eg. leaflets through letterboxes
- Affordability checks needed to be carried out to ensure the homeowner would be able to afford the new rent
- Companies were required to offer a fixed term tenancy of at least 5 years to offer a little more security to those using the sale and rent back scheme
- An independent property valuation had to be carried out
- Homeowners had to be given a 14-day cooling-off period
Despite industry regulation and strict rules, the FSA found that the industry was still not acting as it should. It identified several issues:
- Incorrect information was being given to homeowners interested in using a sale and rent back scheme
- Tenancy agreements were not meeting FSA standards and former owners were facing rising rents and eviction
- Properties were often undervalued and homeowners faced last minute price renegotiations
- Investors were known to default on their mortgages, leaving the former owners facing eviction with little notice
2012: As a result of these continued industry failings, the decision was taken in 2012 to temporarily halt the sale and rent back market.
2020: Although the sale and rent back industry is still operational, there are very few companies that now offer the service. Any companies that offer a sale and rent back scheme without being registered with, and regulated by, the FCA are operating illegally and should not be used.
Should I use a sale and rent back scheme?
Serious concerns were raised about the sale and rent back industry a full 5 years before the FCA study in 2012. During that time the industry was the subject of several investigations by the Government, Which? And the OFT. Despite industry regulation, the OFT found that the industry was still using highly questionable practices and not adhering to the strict rules that had been put in place. Some sale and rent back companies were also accused of serious fraud. As a result, they were left with little option other than to halt the industry.
There are a few companies that are now authorised to offer a sale and rent back scheme, with very strict guidelines, but you should still think very seriously before using them.
There are several risks when using a sale and rent back scheme.
- Most people interested in sale and rent schemes are hoping to clear their debt but remain in the property long-term. The difficulty is that once you have sold your property, you are put on a standard rental agreement. This means you can be given notice to end the tenancy at any time, just like any other tenant. There is no guarantee that you will be able to stay in the property for the period of time you would like.
- Rental payments are currently higher than mortgage payments in many areas. If you’re struggling to afford your mortgage repayment, it is unlikely that a sale and rent back scheme for the same property will be affordable. If you fall behind with your rental payments, you will be evicted from the property. It is likely to make more financial sense to sell your current property and move to a smaller, more affordable rental property.
What are the alternatives to sale and rent back schemes?
If you’re struggling financially and have decided that selling your property is the best way to address the situation you find yourself in, there are other options.
If it’s important that you get as much money for your current property as possible, your best option is likely to be to sell it on the open market using an estate agent.
If you’re facing severe financial hardship and it’s important that you sell your property quickly, selling your property to a home buying company could offer you the clean slate you’re looking for. A genuine cash home buyer will buy your property at a discount, but will pay more than sale and rent back schemes did. You can expect to receive around 80-85% of market value. The sale can complete on the date of your choice, in as little as 7 days if you’re in a hurry, and is guaranteed so can be used to stop repossession and eviction in their tracks. There are now very few companies offering a sale and rent back scheme, but a quick sale to a home buying company could still offer you a way to clear your debts and start afresh.
Find out more about:
- Why can’t I sell my house?
- How to find out how much a house sold for
- A guide to property indemnity insurance
- Freehold vs leasehold – what’s the difference?
- House completion – the process
- Buying a house with subsidence
- Can I sell my home and rent it back?
- Structural survey – all you need to know
- What is a memorandum of sale?
- What are title deeds?