Sale and rent back may look like the answer to your mortgage problems, but it is NOT. There are alternatives and you can get good, free help to get you out of the fix. Read on to find out more about it and see what options you have instead of this desperate measure.
- What is sale and rent back?
- Why would companies offer to do this?
- Should you do sale and rent back?
- Alternatives if you’re really in a fix with your mortgage
Pretty much what it says on the tin. A company buys your house from you but you stay put. You then pay the company that has bought your house rent each month or each week.
In theory, you get a large payment of cash to stave off your immediate debt problems without having to move house. In practice, this often doesn’t happen
If someone is in a desperate hurry to sell their home – particularly if there is the threat of repossession – then they are more likely to be prepared to accept a lower price. This means that the company buying the house can get a bargain which it can sell later on for a very nice profit.
These companies would argue that they are not trying to rip people off, but simply offering a solution to help someone avoid repossession.
No you should not.
Rushing to sell your house means that you will be in a really vulnerable position. You are entirely at the mercy of the company buying your house from you. Its business priority is to make money. The lower the price it can buy your house for, the more money it stands to make in the long run. Not only that, but there have been many instances of people being thrown out of their home once they have rented for a few months.
Clearly this is the total opposite to your best interests – namely selling your house for the highest price you can get, paying off your debts and having something in your pocket to start over again.
You will continue to be vulnerable once you have sold your house – we have heard of people who ended up homeless because their rents were hiked up after a short time.
Sale and rent back and the Financial Services Authority
Since June 2010 companies running sale and rent back schemes are at least regulated by the Financial Services Authority (FSA). This means they must stick to new rules when trying to convince someone struggling with their mortgage to sell their home. For example tenancy agreements must last for at least five years, people who have agreed to sell their homes should be given a 14-day cooling off period, homes must be independently valued, and sale and rent back companies must not use high-pressure selling techniques. See the full list of rules here. Despite the added regulations, however, the FSA recommends this should only be used as a last resort.
National debt charities have also expressed concern about sale and rent back companies and we at Moneymagpie have yet to find a company that we would be happy recommending you touch – even with a bargepole.
There are fabulous resources available to you completely free of charge. They are 100% independent and offer excellent advice tailored to your precise circumstances.
Follow the three steps below and you can’t go wrong (these steps are also in our dealing with repossession article).
Step one: get it down on paper
Find out and write down the following (and don’t leave anything out):
- All the debts you have: mortgage, remortgage, secured loans, unsecured loans, credit cards, store cards, overdrafts and any others
- The unpaid bills you have: utilities, hire purchase, car finance and any others
- Roughly how much your home is worth
- Any sources of income you have, salary, benefits, pension, annuity etc
- Any money you have saved or assets you own (shares, other properties etc)
Step two: get help
Contact one or more of the organisations below. All of them provide expert advice completely free of charge. They have no hidden intentions, their only goal is to give you the best help and advice possible towards solving your financial problems. In the case of the Citizens Advice Bureau (CAB) their advice goes beyond the subject of finance.
They will ask you for all the information that you have put together in Step One. Once they have gone through that they will advise you on the best course of action according to your specific circumstances. And what’s more they will even make sure you are getting all the money you are entitled to from sources such as benefits and tax credits.
Shelter is the best charity for helping with mortgage and housing problems. If you contact them early on in your troubles they can often help you keep your home. Even if you are about to be repossessed or you have signed a form to allow sale and rent back, they can still sort out the situation for you.
The people at Shelter say that they often have to help people once their house has been taken away but they know that they could have prevented it if they had known about the problems early on. Even if they can’t stop you being thrown out of your home, at least they can make the process more bearable and help you organise rented accommodation early.
Citizens Advice Bureau
click on this link to find out your local branch – If you have serious, complicated or urgent debt problems then the CAB is probably your first port of call. For example, you may owe money to several organisations, or you may have been threatened with repossession, or you may be about to go to court regarding unpaid debt. The CAB will arrange a time for you come to the office nearest you so that you can meet with an expert who can assess your situation and provide the best advice on what to do next.
As well as its permanent offices, the CAB also runs temporary clinics for smaller, more remote communities. It will even try to come to you if you have serious mobility problems.
In worst case scenarios, their help can cover ‘”an A&E service” as Moira Haynes of the CAB describes it. “We have a County Court Advice Desk that can help people who are about to go to court. This can have a significant impact upon the outcome of the hearing even at this late stage.”
Following the meeting the CAB will, if you would like, negotiate on your behalf with your creditors (the banks and other organisations to which you owe money). So if you are dreading talking to all the people you owe money to, stop worrying – help is out there.
The StepChange Debt Charity
(freephone number) The StepChange Debt Charity specialises in helping people with credit problems eg unpaid credit cards, overdrafts, store cards and other debts that are not secured on your home. However, it has just set up a special unit to deal with questions about repossession, so it will be able to help if you call.
The service is primarily telephone based. In the first, fairly brief call you speak to a Duty Counsellor who takes your details and makes an appointment for the second call – the “full scale counselling,” as the spokesman puts it. They will need to know your debts, benefits, income and other financial information mentioned in Step One. The call can take up to an hour and equip you with the options open to you and how to proceed.
If you wish to retain your anonymity, you can get the same service through the StepChange Debt Charity’s website.
National Debt Line
0808 808 4000 (freephone number)
Another telephone and web-based service, the National Debt Line has the broad remit of dealing with “debt problems”. It also has much the easiest website to navigate. If you just want to test the water, download a Budget Planner, Information Pack or Debt Management Plan.
For more detailed information and counselling then you can call them. National Debt Helpline works in one initial call and is then available for any further queries. It will first establish all your circumstances and then go through the options that are open to you. It doesn’t contact your creditors or lenders (unlike the CAB) but it does give on-going support for self help.
- Citizens Advice Bureau (click on this link to find out your local branch)
- StepChange Debt Charity or 0800 138 1111 (freephone number)
- National Debt Line or 0808 808 4000 (freephone number)