Private sale and rent back schemes
Sale and rent back schemes are operated by private, profit making companies.
You sell your home to a private company and rent it back from them.
If you sell and rent back your home, you can lose the security of a permanent home. You also might not get the best price for your property.
How do the schemes work?
Private sale and rent back schemes buy your home and rent the property back to you. This allows you to stay in your current home while making it more affordable.
Some schemes allow you to sell only part of your home, so that the property is owned on a shared ownership basis, while other schemes make it possible for you to buy your home back when your financial situation improves.
You should think carefully before signing up to a sale and rent back scheme. Although some schemes are effective and could help you to keep your home, others may simply increase your debts.
Sale and rent back schemes operated by private, profit-making companies are very different to the Help to Stay scheme offered by Welsh government and other Mortgage Rescue Schemes operated by local authorities or housing associations.
Are private sale and rent back schemes regulated?
The Financial Conduct Authority (FCA) regulates the conduct of these schemes. Before entering into any private sale and rent back agreement you should check to see if the private firm is registered with the FCA. You can do this by using the Financial Services Register.
All FCA registered firms must follow certain rules, including:
- You should be given a 14 day ‘cooling-off period’ to give you time to get advice on the scheme
- They must check whether the scheme is likely to be affordable and appropriate for you, and must make you aware of the risks involved
- The renting agreement (known as an ‘occupation contract’) you are offered must have an initial fixed term of at least five years.
There are also rules on what happens if you get into rent arrears after the sale, for example:
- You should not be charged a monthly arrears charge if you have made an agreement to repay the arrears
- Eviction should always be the last resort – all other options should be considered first.
If you think a company is not following these rules, you can complain to the FCA.
Find out more about the FCA regulation of sale and rent back schemes here.
What are the risks of a sale and rent back scheme?
Be aware that:
- Privately run schemes often buy homes well below the market rate, so you could lose as much as 20% of the true value of your home.
- Many schemes only give a standard occupation contract to the former owners. This gives you very little protection from eviction once you have sold your home. You could be evicted after the initial fixed term has ended – or even before that, if you fall behind with your rent payments or break one of the other conditions of the contract.
- The rent you have to pay may end up being as much as your current mortgage payments. Rent increases may be very large. This increases your chances of getting into arrears after the sale.
- You may not be entitled to housing benefit (see below).
- If a scheme gets into financial difficulty after it has bought your home, your home could be repossessed by their lender.
Some companies’ advertisements sound too good to be true… and they usually are. Always get help before entering into a scheme.
Would I be eligible for housing benefit after the sale?
If you do sell your home through a sale and rent back scheme, your entitlement to housing benefit will depend on:
- whether the council believes that you did everything you possibly could have done to avoid selling your home, and
- whether you qualify under the income and capital rules.
Before you contact a scheme
Before you contact a private sale and rent back scheme you should:
- Continue to pay as much as you can, to avoid the build up of further arrears.
- Get debt advice from a not-for-profit agency such as National Debtline or speak to one of our specialist debt advisers. Specialist debt advisers can make a full financial assessment and help you work out a plan for clearing your debts, and covering your living expenses.
- Consider negotiating with your lender first – most lenders consider repossession to be a last resort and are willing to discuss other ways to make your mortgage more affordable.
- Have a look at the Money Helper website, which has lots of advice and information on sale and rent back schemes.
If, after getting advice, you do decide to join a scheme, be sure to ask the following:
- Can you keep ownership of part of the property?
- What type of renting agreement would you have?
- What protection from eviction would this give you?
- What would the rent and other payments be?
- How often will the rent be increased and how will increases be calculated
- How will they deal with you if you fall into rent arrears? What procedure will they follow?
- Can you buy back a stake in the property if your financial circumstances change?
- Will you have to pay for all the legal and financial costs associated with selling your home to the scheme?