If you’re facing house repossession and/or looking at becoming homeless, are private sale and rent back schemes all that they seem?
Over the last few years, as more and more home repossessions in the UK have occurred, private sale and rent back companies have appeared on the housing market.
For those in a poor financial position – faced with the prospect of losing their homes – it seems like the best possible option, the best answer to preventing the loss of their homes.
But is it?
If you can say ‘well … we have no other choice, we absolutely have explored every other option first’ … then maybe so. But if you have yet to reach the Possession Order stage, think twice before you approach such a company. The fact is that there are far more cons than there are pros. The ball is far more in the court of the companies operating these schemes than it is in the home owner’s.
First off – you are likely to find that they will buy your home at less than its market value – possibly a lot less. Plus you may then discover that your rental agreement will suit them better than it suits you.The easiest way to understand what’s in it for them is for you to read and digest the following list:
- The equity will be reduced. They buy for as little as possible as a means of achieving the best potential re profits
- Rental agreements are often short hold – this gives you only a short to medium term security
- If the company experiences financial difficulties – they will then default on their lenders … and the house repossession monster will reappear
- Your rent may well be higher than you expected, in some cases as high as the mortgage repayment – that you were struggling to keep up with
- Increases to the rent could be hefty – again this reduces your future financial security, which outweighs the point of you turning to them in the first place
- You may well find that you’re not in a position to claim Housing Benefit – which for those in financial difficulty can be a short to medium term God send
So what are the pros? – :
- There may be enough of the equity left to allow you to at least make headway with personal debt
- You will avoid the trauma of house repossession
- Albeit as a tenant, you will get to stay in your home
As you can see – the ball really is in their court … and not yours.
Private Sale And Rent Back Schemes – The Good News
Fortunately – there is some good news regarding private sale and rent back schemes. As of June 30th 2010, the FSA (Financial Services Authority) is now able to regulate all such companies. Every company has to follow a strict set of guidelines in order to be allowed to operate.
To read up on the various rulings, a link for the charitable organisation Shelter is at the foot of the page. If you choose to discover what the current legislation encompasses, Shelter is also another great free advisory service that you can access as a means of avoiding house repossession.
- In case you don’t want to trawl through the more important aspects, the short list below details the key guidelines:
- The tenancy must be for a minimum fixed term period of five years
- The company have to ensure that the scheme suits you – in terms of finances, and make sure that all the risks are clearly set out
- They’re prevented from using spurious advertising, such as mortgage rescue (it’s not), ‘cash quickly’ (not always likely) and ‘fast sale’ (they don’t have the ability to speed up conveyance any more than anyone else)
- If you fall behind with rental payments, from the moment you agree on a repayment plan, they cannot charge you interest on the arrears
There are other rulings, but the above cover the main criterion.
Things to Consider Before Opting To Use Rent Back Schemes
There are a range of things you should consider before making the choice to use one of the dozens of companies now in operation.
The first piece of advice is this: ensure you’ve exhausted every other avenue first. And this includes:
- Availing yourself of the correct help and advice (see links below)
- Communicating with your mortgage lender
- Trying to secure some sort of effective mortgage rescue plan of action
If and when you feel you’ve no other option than to go with a buy and rent back group, then the following are all recommended guidelines:
- Have an independent property evaluation done. Inform yourself of the real current value of your home. Don’t go into a deal ill-informed
- Check the companies background – how long have they been operating, do they have a fixed address, confirm with the FSA that they’re approved and allowed to operate
- Approach similar companies – don’t just go with the first you stumble upon
- Ask for real evidence that they’re everything the claim they are – request to be put in contact with a previous customer/tenant of the company
- Take advantage of the free help and advice available before you sign your name to anything
The above are all common sense pieces of advice. All they will cost you is time. The result will be that your knowledge base has increased and you will know exactly where you stand – what your rights are, how it all works, whether it’s the best available option and so on.
Include in the links at the foot of the page is a downloadable and printable PDF document that gives a detailed breakdown of everything you should consider and/or ask for – if you do decide to go ahead. This is to be used once you’ve chosen a private sale and rent back company.
Whatever you do – don’t jump in blind. There are always alternatives to stop house repossession – providing you arm yourself with all the information that’s freely available to you.
Housing Repossession Help And Advice Links
Shelter – a great website, packed full of useful information
Private Sale And Rent Back PDF Checklist – free, easy to download and print out
FSA – the Finacial Services Authority. Well worth checking out and a mine of information freely available