Property Wisdom – Sell and Rent Back Beware
Sell-and-rent-back schemes can be a solution to unmanageable debt problems – but only as a last resort, says property expert Laura Henderson.
“Expecting something from nothing is the most popular form of hope.”
– Arnold H Glasgow
With a daily diet of consumer debt hitting the headlines, one of the biggest growth sectors feeding off this mini-pandemic is sale-and-rent-back. In its simplest form, SARB companies purchase people’s homes for less than the market value, typically between 70% and 80%, generally paying all fees and costs. The company then rents the property back to the owner at less than the market rent. Homeowners can use the remaining cash to settle their existing mortgage and any outstanding debts, while remaining in their own home. Some companies also offer the opportunity to buy back the house at market value at a later date.
SARB arguably does what it says on the tin – it can get you out of a financial hole, enabling you to use the residue to pay off other existing debts. More often than not however, the disadvantages linger long after the initial bail out has been dealt. Try the following reality checks for size – firstly your home will end up being sold at a loss, with you effectively paying the lender’s mortgage for them and then some. Assured short-hold tenancy agreements also offer no residence guarantee beyond a six to twelve month period, potentially leaving you facing the threat of eviction. In some instances, companies even fail to pay the mortgage and the house is repossessed anyway.
New guidelines introduced by government outlining better practice are certainly a step in the right direction, but even with those safeguards in place, SARB should only ever be seen as a last resort. If you do have to sell up due to debt problems, speak to your mortgage lender first. You may well be able to switch to an interest-only loan or defer payments while you try and sell your home. That will at least give you the chance to put your property on the open market and get the best offer possible.
Laura Henderson is Editor of Abode2 Magazine abode2.com. Her latest book Tricks and Mortar: The Little Book of Property Wisdom is out now.