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?
All sale and rent back schemes were made illegal in February 2012.
A study by the Financial Services Authority (FSA) 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.
You may still see adverts for companies offering sale and rent back schemes, but any companies offering this sort of service are now acting illegally.
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 make all sale and rent back schemes illegal.
Why did the FCA ban sale and rent back schemes?
Serious concerns were raised about the sale and rent back industry a full 5 years before the industry was shut down. 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 make all sale and rent back activity illegal.
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.
Selling your property to a home buying company could offer you the clean slate you’re looking for. A genuine cash home buy 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. It’s no longer legal to sell your property and rent it back, but a quick sale to a home buying company can still offer you a way to clear your debts and start afresh.
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- Should I sell my house to pay off debt?
- Retirement planning – should you sell your house?