For homeowners in the UK who are facing potential repossession of their home, the sale and rent back scheme is one of the options available to you to avoid this problem. What is a sale and rent back scheme? As the term implies, it is the process in which the homeowner will sell their home quickly to a private company (third party, for profit company) and will in turn rent the home from that company.
It is important to remember that in this sale and rent back scheme, the private company will typically pay the homeowner less than market value to purchase the home from them, so you do run the risk of losing money in this scheme. Another possibility is that the private company sells the home to a let landlord.
Tenancy guarantees –
When you engage in this scheme, the tenancy you are likely to get is known as an assured short hold tenancy. This is for a fixed term which is for at least five years in duration, so keep this in mind if you plan on selling to a private company in the sale and rent back scheme. It is also important to note that at the end of the five year period, you can be evicted from the property at the new owner’s discretion. And, the landlord is only required to provide you with a notice period of two months, and does not require a particular reason to evict you from the property at the end of this period.
Are there risks involved? –
Yes. Like any other “scheme” you engage in, there are risks to be aware of if you opt to sell your home to a private third party company to avoid the repossession notice you may have recently receive. What are some of the potential risks you will be facing? Some of them include:
– The possibility for eviction. Again, at the end of the five year period which you are renting the property, the landlord has the option to evict you, without notice.
– Eviction is also an option the landlord has for non-paying tenants, or tenants who do not keep up with the terms written up in the lease agreement.
– Rent increases are always a possibility. The landlord who purchases the property can increase rent at their discretion, and as the tenant, you have to pay these increases as per the lease agreement you signed.
– When you sell the home, there is the major risk of losing money on the sale. Again, the private company which purchases the property in the sale and rent back scheme typically purchases it at a rate which is well below market value. As the current owner, this means you take the loss on that sale to avoid the repossession notices.
It is also important to remember that the new landlord who purchased the home from you is responsible for the mortgage payments on the home. If they do not make these payments, you also run the risk of losing your home in this agreement.
Benefits (Can you claim them)? –
After the sale and rent back scheme transaction is completed, your entitlement to means-tested benefits might be affected. For starters, if you remain in the home (living in the property and paying rent to the new landlord), you may not be entitled to claim housing benefits any longer. Additionally, if you remain in the home, you might be required to prove that selling your home was the only option available to you to avoid repossession of the property. If the housing council makes the determination that you did have other benefits (apart from sale and rent back) and did not take advantage of these options, they can deny your means-tested benefits application as well.
Is sale and rent back right for you? –
This is a question only you can answer at the end of the day. If you are facing potential repossession of the home, don’t have the means to pay for it, and can’t find other financing or loan options, then maybe it is time to consider this option. You can always seek out legal guidance as well, to help you determine whether or not this is a viable solution to your problem.
Regardless of the situation you are in it is important to understand this process, how it works, and what risks are involved with it, if you are considering sale and rent back as a means to avoid repossession of your home.