Sale And Rent Back Schemes – What Is It & Should You Do It? (Updated 2021)

Sale And Rent Back Schemes

Sale and rent back schemes (SRB) are considered by some as a life line, and the underbelly of the property industry by others, which should be an absolute last resort. So which is it?

Before answering that question, it’s important to note that the SRB industry has gone through changes over the years, so what does it look like in 2021 and how does it work? But perhaps the most pressing question is, should you sign up for it? Let’s take a look at the details…

What is a sale and rent back scheme?

Sale and rent back (SRB), also known as sale and lease back, is the name given to the process whereby a homeowner sells their property to a company or a private landlord with the agreed condition that they can stay on as tenants.

Typically, the homeowner will have to sell their property for below market value (typically between 65% -80% of the property value, which is shockingly poor value for any seller), on the basis that they can stay on as long term tenants. The scheme is notoriously targeted at homeowners dealing with financial turmoil and potentially facing repossession, because it enables them to quickly sell their home while remaining in it. In reality, there isn’t really a good or practical reason for why anyone in a good financial position would need to use a sale and rent back scheme (unless they’re feeling charitable and just want to toss money away).

Sale and rent back companies are CLOSED!!!

It’s critical to understand that the sale and rent back (SRB) industry is currently closed. That means there aren’t any firms offering the service. Or at least, there shouldn’t be!

Of course, that hasn’t stopped unscrupulous outfits illegally offering the service to vulnerable and desperate home sellers that aren’t aware of the closure. Adverts for sale and rent back services often crop up online. Buyer beware!!

If you’re currently being hoaxed into working with a sale and rent back company, please step away – even if they claim to be regulated by the Financial Conduct Authority (FCA), because they’re definitely not regulated. You can check the register on the FCA’s website.

So is the sale and rent back scheme dead?

Well, not altogether.

As far as companies being able to offer the scheme, yes – they’re dead. But the reality is, private individuals can still approach desperate sellers and offer them all the things a sale and rent back company once did, which is a BMV offer and a long-term tenancy in the property.

Sale and rent back alternatives

Before anyone takes SRB seriously, I think it’s important to explore the other options available, because they’ll most certainly be better regulated (which means safer) and generate a better net result!

Obviously I don’t know your specific circumstances, and it’s very possible that one option might be better suited than another, so it’s always best to do your own due diligence and weigh up your options. The assumption is, though – in all cases – is that you’re facing financial difficulties (if you’re not, you probably shouldn’t be exploring sale and rent back as a viable solution… for anything).

  • Take in a lodger – taking in a lodger is a great way to generate extra income. Not only is it a flexible solution, but there are also tax breaks available. Here’s a full guide on taking in a lodger.
  • Remortgage – talk to your lender to see if there’s anything they can do to help reduce your monthly mortgage costs. If you’re out of your fixed-term, or if your lender is willing to give you some relief, remortgaging might be a great solution to lowering your costs.
  • Sell via traditional means – it’s always worth considering selling your property through traditional means, it may not yield the quickest sale (it might, though – you never know), but it will result in a significantly higher sale price compared to using sale and rent back scheme, which means you’ll get more money! On a side note, here’s how you can get a free house valuation and how you can sell your house for free (no catch).
  • Use a quick sale cash company – if you’re looking for a quick cash sale and you’re willing to sell your property BMV, then you can look into property cash buyers. There are plenty of regulated companies around, many of which are willing to pay up to 85% of the market value.

The risks of using sale and rent back scheme

So, we’re already covered that sale and rent back companies are closed for business, which means they’re not legally allowed to operate. However, the concept of selling your property to a private buyer and renting it back off them is still alive and well, so I want to discuss the risks involved with that.

  • You could still face eviction – one of the biggest appeals of the sale and rent back scheme is that sell gets to remain in their home. However, it’s important to note that you can still get evicted even if you have a long fixed-term tenancy agreement, which means you could be forced to move out sooner than planned (that’s why pursuing the alternative methods are generally much safer)! Landlords could have grounds for eviction in the following cases:
    • Breach of contract – if you breach any of the terms of the tenancy, including falling into rent arrears.
    • Repossession – if your landlord (i.e. the person that purchased your property) gets into financial difficulties them self, your home could get repossessed.
  • Be wary of rent increases – your tenancy agreement will most likely fix your rent for a period of time, but bear in mind that after the fixed term, the landlord might be well within their rights to increase the rent.
  • Your entitlement to benefits may be affected – if the sale of your property results in a large cash windfall, you may not be entitled to financial benefits provided by the Government, or at least, the amount your entitled to might change.

Need help with accessing benefits and/or debt?

Lastly, before I check out, I’d be remiss if I didn’t point everyone in need of assistance with budgeting, mortgage debt and bankruptcy towards the following charities:

  • Shelter – provides advice on mortgage debt, understanding schemes and their effects, and your rights as a tenant and Housing Benefit claims.
  • StepChange Debt Charity – provides advice on budgeting, mortgage debt and bankruptcy.

Best of luck (and avoid sale and rent back schemes if you can!) xo

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