Sale and rent back schemes

Over recent months things have become increasingly difficult for homeowners across the UK. There are a number of factors that have contributed to the difficulties faced by homeowners recently, and two of the main factors include increased living costs, such as above average inflation on the price of food, and rising interest rates. Since August 2006 the Bank of England has raised interest rates five times in total, each time by 0.25%. This has taken the base rate from 4.5% last August to 5.75% by this July.

Homeowners on variable rate mortgages have been seriously affected in many cases, with their repayments rocketing as a result of the five interest rate rises. Also, there are those that took out fixed rate mortgages two or three years ago, who now face coming off their low fixed rates and having to find the money to keep up with their mortgage repayments on the higher interest rate, which could equate to hundreds of pounds a month extra in some cases.

The level of repossessions in the UK has rocketed over recent months as a result of this situation, and many experts think that this trend will continue as thousands of people come off their lower fixed rates and have to switch to higher fixed rates or face higher variable rates. Many people have already lost their homes, and many others are struggling to keep up with repayments and looking desperately for solutions to help them to avoid losing the roof from over their heads.

One so called solution that has emerged over recent months is known as the sale and rent back scheme, and on the surface this may appear to be an effective solution for some homeowners. These schemes are where companies that specialist in sale and rent back purchase the homeowner’s property from them, thus enabling the homeowner to pay off their mortgage and stop worrying about keeping up with mortgage repayments. The homeowner is then able to rent back their home from the company at a set monthly rent, so there is no disruption or uprooting to worry about.

However, these sale and rent back schemes have received some very bad press recently too, with concerns being voiced by a variety of campaigners and consumers groups with regards to the real effectiveness of these schemes. The Citizen’s Advice Bureau has recently voiced its concerns on the ‘Tonight’ programme with Trevor McDonald, and has described the schemes as a disaster waiting to happen.

According to those that are concerned about sale and rent back schemes the consumer could lose out enormously. This, state officials, is because the price being offered by these companies is way below the market value of the property, with some homeowners selling up for just 60% of the value of their properties. In addition to this there are also concerns that the consumer will get no guarantee with regards to how long he or she will be able to rent the property back for beyond the initial tenancy period of six or twelve months.

This could see the homeowner lose out financially by having to sell up at such a low price, and even after doing so he or she could find that they lose the property after all once the rental period ends, and have to start hunting for a new place to live. Sale and rent back companies have been accused of cashing in on the misery of homeowners that are vulnerable, financially struggling, and could face repossession.

Homeowners are being urged to consider very carefully before opting for a sale and rent back scheme, and to look at other options and solutions such as discussing mortgage problems with their lender or switching to a more affordable mortgage. The Cab and other campaigners are concerned that there is no regulation on sale and rent back schemes, and this means that the consumer cannot benefit from vital protection.
One official from the Citizen’s Advice Bureau stated on the Tonight programme: ‘We’ve got people who are vulnerable trying to stay in their home being enticed into an industry that has no controls on it at all at the moment and that is a disaster waiting to happen. Unless something is done to bring this industry into some kind of regulation to get some sort of framework of quality and assurances for people entering into these agreements, the kind of security tenure they’re going to get, what they are paying and what protection they get against things going wrong, we could see a lot more people really finding they are losing out lots of money and still losing their homes.’