Summary: this article explains what a Sale and Rent Back scheme is, the potential benefits, and the possible downfalls.
If an individual finds themselves struggling to repay their mortgage, there are usually a number of options available, from coming to an agreement with their mortgage lender, to the government funded Mortgage Rescue Scheme (if eligible). Sometimes, there may be restricted options depending on circumstances, and some may consider a Sale and Rent Back Scheme.
What is the Sale and Rent Back Scheme?
They are generally run by private companies, and involve the company buying the property from the individual, and renting it back to them. This allows those struggling to repay their mortgage and who are in arrears stay in their home. As mentioned, these schemes are private firms or brokers, and are not the same as other options such as the Mortgage Rescue Scheme.
Are there any downfalls associated with such a scheme?
It is important for anyone thinking about entering a Sale and Rent back scheme to seriously consider their options and seek independent financial advice before signing any agreements. Normally, the property will be bought at a reduced price, so the long term financial impact needs to be taken into consideration. Will the amount cover the original mortgage and arrears owed? Will the monthly rental payments be affordable? How long will the fixed term tenancy agreement be? At least 5 years tenancy must be offered, but can this be extended or will rent be increased again? Or will the property be sold on? Selling the property could also affect some benefits, such as housing benefit and Jobseeker's Allowance and there is still no guarantee that eviction may not occur.
Are companies offering these schemes regulated?
They are governed by the Financial Services Authority (FSA), so there is a route of complaint if necessary, but Sale and Rent Back schemes should only really be considered as a last resort and after all other avenues, and financial advice has been sought.