Should you consider a sale and rent back?

As the credit crunch bites ever deeper ordinary people struggle to pay their mortgage

As the credit crunch bites ever deeper ordinary people struggle to pay their mortgage

The number of homes being repossessed by mortgage lenders rose by 54% to 40,000 according to the Council of Mortgage Lenders (CML). The Financial Services Authority (FSA) recently reported that house arrears had surged forward by 31%. As the credit crunch bites ever deeper people who are struggling to pay their mortgages are searching for other ways to stay in their homes and are looking for any options available to them.

The Procedure

The procedure followed by a mortgage company to obtain a repossession order is to take the mortgage borrower to court to obtain a repossession order. Mortgage borrowers end up in court due to mortgage arrears and or non payment of their mortgage. Once a repossession order is granted by the court the borrower is notified by the court of the date of repossession. On the day of repossession a bailiff and a locksmith arrive to evict the owners and to change the locks. The police are informed and back up can be requested depending on the circumstance.

What Options do you have?

What options are open when there is a repossession order against your home. People in this situation will have already tried to sell their home through an estate agent and they will have dropped their asking price to find a buyer. They may have already approached family and asked for help or they may have considered a sale and rent back scheme.  With a sale and rent back you would sell your home to a landlord who would agree to rent your home back to you. This option is only available if you have 30% or more equity in your home based on a valuation provided by a valuer.

Should you consider a sale and rent back scheme?

Should you consider a sale and rent back scheme?

Sale and Rent Back

The type of landlord that would provide you with a sale and rent back scheme would buy your home from you at a below market value. They would then rent your home back to you on a six or twelve month Assured Shorthold Tenancy agreement. After the short tenancy agreement the landlord may seek possession of the property with only a month’s notice period or they may choose to renew your agreement.  A major disadvantage is that the future rent charged could increase at the end of the agreement and if you don’t agree with the new rental terms you could find yourself moving out of your home. This was a situation you were originally trying to avoid.

To sell property fast when faced with a repossession order calls for a specialist company. Trade Buyers of property as they are known can normally complete a house purchase in 2-5 days. Based on a valuation of £180,000 for your home a trade buyer would offer you £126,000, which would be subject to contract. There are no fees payable by you and the buyer would pay the legal fees associated with the purchase. You would generally receive 70% of the valued property.

When you are looking through the newspaper or on the internet you may see an advert saying, “Need to sell house fast ” contact us first. Be sure to carry out due diligence on the company offering you a sale and rent buy back scheme. This is a growing business with some 2,000 schemes available in the UK. Look for a reputable company preferable one that has been around for a long time. This is an unregulated business area and you have little protection against unscrupulous operators. There are some ethical companies out there.

Here are a few do’s and don’ts.

  • Whatever happens don’t be put under any pressure.
  • Take legal advice
  • Talk to someone from the Citizens Advice Bureau
  • Don’t stop talking to your mortgage lender – keep trying to renegotiate your monthly payments and any arrears.
  • Go to court and state your case
  • Ask to talk to a current tenant who has gone through a sale & rent back scheme.
  • Don’t ignore your finance problems they will not go away.
  • Consider renting out a room to help your finances
  • There is no guarantee you will receive any housing benefit to pay the rental cost, irrespective of what the company may tell you
  • Talk to a qualified finance adviser
  • Talk to National Debt Helpline for some advice and help
  • Remember if you don’t pay the rent the new landlord will have you evicted
  • Make sure you can afford the new rent for your home – don’t pay any price to stay in your home if it is unaffordable -it is unaffordable move out

Costs of Repossession

Don't stop talking to your mortgage lender - keep trying to renegotiate your monthly payments and any arrears.

Don't stop talking to your mortgage lender - keep trying to renegotiate your monthly payments and any arrears.

If your home was repossessed by your mortgage lender then they can and will chase you for all their expenses incurred for repossessing your home. The costs would be for the bailiffs’ attendance, locksmiths costs for replacing all the door locks, the estate agents costs incurred for selling your home, any interest on mortgage arrears and or missed mortgage payments, solicitors’ fees for selling your home, court costs, mortgage lenders administration costs and the list goes on and on. The costs you would finally be responsible for would be considerably higher than you’re original mortgage. I believe that the mortgage lender has the right to chase you for the money indefinitely.

In Conclusion

Always try and negotiate with your mortgage lender to see if they can give you more time to try and sell your home privately and ask if there is any other way of saving your home. Think carefully about repossession and remember just because your home is repossessed does not mean that your debt  problems have gone away they may just be starting in earnest. Be very carefully about a sale and rent back scheme and don’t let anyone put you under any pressure and seek legal advice first.

Whatever you do take advice and remember if something is too good to be true then rest assured it will be too good to be REAL. Your thoughts, experiences and comments are welcome. You can join the discussion below and leave your thoughts and experiences.

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4 Responses to Should you consider a sale and rent back?

  1. The Financial Blogger March 31, 2009 at 10:30 am #

    A sale and rent back option should be your very last resort. Owning your property is far better than renting at any stage of the property boom and bust cyle. THe problem is that people have historically (in the last 10 years) borrowed far more than they can realistically afford. Unfortunately the banks have been greedy enough to lend far beyond borrowers means = global financial crisis & credit crunch & recession.

  2. Sell House Fast April 28, 2009 at 10:40 am #

    I agree with the financial blogger, if you are in financial difficulty a better option would be to downsize to a more affordable property with a lower mortgage, at least you will still be a homeowner.

  3. UK Sale And Rent Back Dude May 6, 2009 at 6:48 pm #

    Given that a significant number of home owners have used their property as collateral to raise further sums of cash (without realising that at some point the bubble was bound to burst) this state of affairs was bound to come about. Added to the bank’s readiness to continue issuing credit cards regardless of the individual’s circumstances once the curve began to move in the wrong direction the writing was on the wall. Despite of what I see as a sense of misplaced optimism we haven’t seen the worst yet.

  4. Sell and Rent Back August 19, 2009 at 10:12 am #

    I think you are right. A lot of money has been spent on trying to get us out of this mess and this means taxes will have to go up. How is this going to affect the average person? I think it will quite a while before the property market recovers and when it does it will be slow.

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