Sell and Rent Back: Facts and Myths

Sell and rent back schemes have become extremely popular and to struggling homeowners they may look like the ideal option to reduce debts. There are always certain conditions with any scheme and knowing the facts and myths should ensure that sellers make a more informed decision.

All Sell and Rent Back Schemes are the Same

Sell and rent back companies are, at the moment, unregulated by the government. This means there are no actual government guidelines on how the sell and rent back companies operate and no protection for the sellers. At the moment there are around 8000 companies offering this service in the UK and companies do operate differently. The Office of Fair Trading is trying to quickly push through compulsory regulations for the sell and rent back companies.

Sell and Rent Schemes Offer a Fair Price

This is not necessarily true and many people have been caught out due to companies not properly disclosing information. Struggling homeowners who are considering these schemes should be fully aware of the terms and conditions of these schemes. Selling property to these companies will usually see a reduction in the sale value of the property of around 20%. However, there are companies that will offer homeowners only 60% of the actual sale value price.

Sellers are Guaranteed Rights to Rent the Property

Vulnerable sellers have been caught out with promises that they can stay in the property for as long as is required. Sellers must make sure they are aware of the rental terms and conditions. There have been many reports of sellers facing extortionate rental price increases once the sale has gone through. Other companies will only offer six or twelve month rental contracts to tenants.

The Property Can be Bought Back in the Future

There is no guarantee that sellers can buy back their property in the future. If a sell and rent back company does offer buy back as a future option it may not be to the buyer’s advantage. Sell and rent back companies exist to make money, and these companies are making around £2.5 billion per year. The original discount that the company made when buying a house will not usually be applicable when the seller wants to buy back their property.

There is No Risk to the Seller

This is a complete myth; there are always risks with sell and rent back schemes no matter what the companies tell the homeowners. Until the government regulates these companies there is always the chance that the seller will lose out. There are major risks concerning the valuations on the house, the future rental price and how long tenants can rent their property. Sellers should never sign any contract until they are fully aware and can understand all of the terms and conditions.

Sell and Rent Back Schemes are Scams

This is another myth and not all sell and rent back schemes are run by disreputable companies. However, sellers should not be swayed by high pressure sales tactics and should investigate exactly how much they are selling their properties for. This may seem like a quick fix debt solution when times are hard but advice should be taken before signing any sale contract. Until regulations are brought in covering sell and rent back schemes there is very little protection guaranteed to the seller.

Rent Prices Will Not Increase

Another myth and one that has led to evictions of tenants. Sell to rent back companies can increase the rental prices if they choose. There have been many reports of companies claiming that the original rental price did not cover the mortgage payments and rents were then increased. Sellers should make sure they are dealing with reputable companies that have the exact rental terms and conditions included in the sell to rent back contract.

There is Always a Reduction in the Property Sale Price

This is not necessarily true and there are sell to rent back companies that will offer 100% sale value without taking a discount. These companies will make their money on fees applied to the sale. Researching different sell to rent back companies will ensure that sellers get the best deal. There are reputable companies in this market and sellers should not jump at the first offer through desperation.

Until government regulation is brought in there is very little protection available for sellers with sell to rent back schemes. This does not mean that a good deal cannot be found, it simply means sellers need to be wary when considering these schemes. Selling to rent back is a huge financial decision that should never be taken without careful consideration and sound legal advice.