Mortgage & Housing

18 September 2007

Reader Writes:

I have seen an advertisement for a scheme that lets me sell my house and rent it back from a landlord. Is this a good scheme?

The sale and rent back scheme you are referring to has some advantages – a bit like when a bad flu at least gets you a day off work.

The scheme simply works with a firm (of landlords) buying your property and then renting it back to you. You receive cash and live in your property. Normally the bad news is in the small print, but there is so much bad news here, it takes up most of the large print.

It would typically appeal to those who are struggling with payments, and need to realise some assets to pay off debt, but unfortunately cannot borrow, and also cannot sell their house. In desperate times, emotions can take over and unscrupulous organisations can take advantage of that.

Repossession figures reached over 8,000 for the first half of this year alone and 35% of people are struggling with their day to day finances. (1) It’s easy to see why firms like the above creep out from the woodwork.

The typical scheme says it will offer you an average of 80-85% of your home! (1) You pay them an average market rent and get to live in your home.

With an average house price in the UK at £181,460, that’s an immediate charge of £36,292 to £27,219. (2) The truth in practise is somewhat different, with quite horrible stories already in evidence.

One lady, Victoria Taylor was offered £50,000 for her £100,000 house. She described the fair rent (what they were offering her) as extortionate. (3)

Another example of an elderly man living in Wolverhampton had his house valued at £165,000 but was offered £40,000 by one of these organisations. (3)

Setting aside the pain this would cause, we can now turn to the guarantee of staying in your property. There isn’t one. The agreement given to you as a tenant is either a six or twelve month assured shorthold tenancy. At the end of the tenancy you can be asked to leave and you have no rights. (3)

In some situations the tenant is offered a reasonable rent at the outset. At the rent review they are offered a greatly increased rent and are then forced to leave. The new landlord now sells his house (which he got at a great discount) for a hefty profit leaving the tenant homeless. (4)

Other horrifying examples cited are those of the landlord defaulting on their mortgage and the bank repossesses the home. This leaves the tenant homeless. (3)

Worryingly, some of the companies encourage you to use their solicitor and surveyor. Where would the independence be there? Are you really going to be fully informed and receive a fair market price? (5)

I took a quick look at a number of the websites that are in existence offering such schemes. One ‘guardian angel’ laid out what other options were available but simply used the space to say that these other options were not a good idea!

Many of these schemes offer their services in local papers with full page adverts (it’s no wonder they can afford them). Other approaches include leaflets being dropped door to door.

Before you consider responding to any of them consider very carefully what else you can do. If you are falling behind on loans don’t stick your head in the sand. Whilst it’s a common reaction and temporarily avoids the pain, it’s the same as trying to solve algebra with spaghetti.

Approach your lender. They don’t want your property for many reasons. If that’s failing approach an independent Financial Adviser and also the citizen’s advice bureau.

Consider also approaching a local estate agent to see if he has any buy to let landlords in the area. If they do, get a valuation from three of them and try and do business that way.

Sell to rent should be the final resort – the very last resort! 


If you are in financial difficulty or if you have a financial query call Peter McGahan in confidence on 0800 0112825 or e-mail info@wwfp.net 


Source:

(1) http://www.clickpress.com/releases/Detailed/38000005cp.shtml
(2) http://www.landregistry.gov.uk/houseprices/
(3) http://news.bbc.co.uk/1/hi/business/6972967.stm
(4) http://www.thisismoney.co.uk/mortgages/article.html?in_article_id=423920&in_page_id=8
(5) http://news.bbc.co.uk/1/hi/business/6266268.stm



Peter McGahan is an Independent Financial Adviser and the Managing Director of Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'
Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.
The above represents the personal opinions of Peter McGahan.
All information is based on our understanding of current tax practices, which are subject to change.
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