The pros and cons of sale and rent back schemes
Sale and rent back scheme have become increasingly popular over recent months, and since interest rates have rocketed more and more people have been turning to these schemes in order to avoid getting repossessed and losing their home altogether. Sale and rent back schemes work by purchasing the property from the homeowners, and then renting it back to them so that they do not have to move, but also they no longer have a mortgage to worry about.
However, there has been a great deal of controversy over these schemes over recent months, and a number of officials have branded the schemes a total rip off, claiming that sale and rent back firms prey on the more vulnerable who end up getting a raw deal. Some officials have accused these firms of breaking promises with regards to how long the former homeowner can rent the property for, as well as accusing them of paying way under the value of the home.
As a result of the concerns that have been raised over sale and rent back schemes, the National Association of Sale and Rent Back and the Property Buyers Association are drawing up a set of voluntary codes of practice, which are designed to offer protection and ensure fair treatment for consumers. According to the industry around 20,000 are able to avoid repossession as a result of these schemes, but campaigners and charity officials state that many people are simply getting preyed on by these firms.
It is clear that there are both pros and cons to sale and rent back scheme, but consumers do have to take risks if they want to avoid repossession, and these risks include being charged a high level of rent, being unsure of how long the tenancy will last, and getting less than the actual value of the home. These are worrying risks, and this is why industry experts recommend that any homeowner seeks professional advice from an independent advisor prior to signing up to a sale and rent back scheme.
There are advantages to the sale and rent back scheme in theory, although this all depends on how scrupulous and fair the sale and rent back firm that you go through is. If you sing up to a bona fide sale and rent back scheme where you receive fair treatment and a fair price on your home then the obvious advantages are that you can avoid getting repossessed and evicted from your home, you can unload the burden of having to keep up with mortgage repayments because you will no longer have a mortgage, and you can still continue to live in your property, but this time as a tenant rather than a homeowner.
In some cases, again where the rent on the property is set fairly, you may find that your monthly rental payments are far lower than your mortgage repayments were, and this can help to ease financial strain. However, another concern that has been raised by some officials is that some sale and rent back companies are inflating the rents, so this is something that you will also have to be careful about.
1st March 2008