Sale-and-rent-back on the increase

People with large debts and growing mortgage interest repayments thanks to the recent rises are looking for ways out of their financial plight. Sale-and-rent-back property companies are looking at these type of people for their custom.In this kind of agreement homeowners can sell their properties at a discounted price to the company, and then rent it back from them at market rate.Owners sell their homes for many thousands of pounds les than its value, but the advantages of sale-and-rent-back can be appealing to borrowers in difficulties. The companies advertise them as speedy, quiet deals wih no need to tell family or neighbours. The trouble is, of course, these are mostly unregulated firms, and many of them are looking to make a quick buck out of somebody else’s difficulty.Sale-and-rent-back companies buy home off people for something like 70% to 80% of the property’s market value, including all fees and costs. They then rent back the property to the original owners at market rates. This could be less than the old mortgage payments. With the cash received from the sale of the house, the previous owners can now pay off their existing mortgage, plus maybe outstanding debts too, and still remain seamlessly in their own home. Some of the companies offer the chance to buy back the house at market value at a later date.Most people would nt easily make the choice to sell their house for 20% to 30% less than market value, but the fear of losing your house because you cannot keep up mortgage repayments is a greater fear, and the thought that maybe you could pay off other debts too could be too tempting. The advertised ease and speed of the transaction (quoted as a week in some cases), plus the payment of legal fees and such like can be very enticing. The companies also say that vendors would only get 85% of the value of their property on the open market, so the chance to get between 70% and 90% for less hassle pulls people in. Another attraction is the discretion – nobody moves, so no one need know what has happened. Everyone in the family can carry on as normal – same home, same work, same schools.The main problem with this kind of deal is the difference between what homeowners are getting for their homes, and what they might achieve, and they’ll be paying rent not dissimilar to their old mortgage payments. Sale-and-rent-back companies and their like are always on the look out for “motivated sellers” – those who need to move quickly, or need the money to settle debts, or keep a move chain going, or who have homes in need of some urgent attention. Motivated sellers, they feel, will have such a need to sell that they will accept a lower price for their house.In such a market there are bound to be some less than scrupulous operators. Services can vary wildy from one firm to another, and they are unregulated and most offer no security for any long-term tenancy or levels of rent. It is, for example, possible that an erstwhile owner could be evicted at the end of an assured shorthold tenancy of as little as six months, having just sold their house for a knock-down price.Despite the companies saying that vendors would only get 85% of the value of their property on the open market, the average across England and Wales is actually 95.7% of the asking price. Sale-and-rent-back firms get a surveyor in to value the property and base their offer on the surveyor’s market value – very different from the asking price, which is usually much higher.If you have a property that might normally be advertised for sale at £200,000, you might only get £150,000 form a sale-and-rent-back firm. That’s fifty thousand less. In the situation that you have to problems paying your mortgage, talk to your mortgage lender. They might be able to switch you to a cheaper deal, an interest-only loan or allow you to take a payment holiday. If you do have to put your house up for sale, you could try a lower asking price (but not 25% lower). And if you do have to move, then move. It will cost you less in the long run, and you’ll probably end up with lower mortgage repayments.Sale-and-rent-back firms have grown up out of those offering deals to motivated sellers. Here they have a cheap deal and a tenant already in place. Ideal! Companies have sprung up on the internet where they easily be found. Some are very small operators run by investors loking for bargain properties.Before you think of sale-and-rent-back, consider all your options. If you do go this route, then look at more than one company and compare what they are offering, especially in terms of tenancy rights.