What is sale-and-rent-back?
Sale-and-rent-back companies purchase people's homes for less than the market value, typically 60% to 70%. The company generally paying all fees and costs, and then rent the property back to the original owners at market rent, or sometimes less than their mortgage payments if these were lower than the rental value.
Homeowners can use the cash to settle their existing mortgage and any outstanding debts, while remaining in their own home. Some companies offer the opportunity to buy the house back at market value at a later date.
Why would someone choose sale-and-rent-back?
Selling your home for tens of thousands of pounds less than it is worth is not an attractive prospect. But those fearing repossession due to mortgage arrears and facing large personal debts may see it as a simple way out of trouble.
Companies promote their ability to complete in a week if necessary, their payment of legal fees and willingness to help customers sort out their debts.
Most sale-and-rent-back operators claim vendors may only get 85% of their property's value by selling on the open market and say they will pay between 70% and 90%, depending on a surveyor's valuation.
But with sale-and-rent-back companies generally paying for the survey, there is an incentive for the home to be undervalued in the first place, slashing the householder's return to 70% or lower of their property's value.
What are the drawbacks of sale-and-rent-back?
The biggest drawback is that homeowners are selling their property for less than it is worth and probably paying the companies mortgage on equivalent rent.
The company may say they guarantee long term rent but when they take the mortgage out on the property it is usually based on 6 months or 1 year tenancy contracts. How often can they put the rent up?How long can you rbe guaranteed to be in the property. Can they evict you after you 6 months of the tenancy. What quality of service will they offer on maintaining the property?
If the company can not keep up repayments on the mortgage then the house could be repossessed and the tenants forced out. Or problems might happen if the company goes into administration
What happens if the company sell the house on to a buy-to-let landlord.
