The pitfalls of sale and rent back schemes

These schemes target people experiencing financial difficulties or those in danger of repossession. The scheme buys your home and rents it back to you.  In theory, this allows you to stay in your home while paying rent, which may make it more affordable than repaying the mortgage.
You no longer own your home and you will acquire a landlord who could eventually evict you, either when your lease ends or if you can’t pay your rent.

Some public sector schemes in the UK currently allow people to sell only a part of their home, as well as buy the property back when their financial situation improves. These are not yet available in Northern Ireland.

‘Sale and rent back’ or mortgage rescue schemes can be run either privately or within the public sector. Since July 2007, the schemes are regulated by the Financial Services Authority. Only private schemes are available in Northern Ireland at the moment.

Private companies often purchase properties at considerably less than the open market value and charge high rent to the previous owners. It is important to recognise that this may leave you in even greater difficulties.

There are some not-for-profit mortgage rescue schemes available in the UK, but none in Northern Ireland. The government has announced plans to provide funding to support housing associations and the Housing Executive to create this service in the near future.

Selling the property through a sale and rent back scheme allows your mortgage debts to be initially cleared and for you to stay in your home. However, you need to keep in mind that if you decide to sign up to such a scheme, you will no longer own your home and could still be evicted if you fall behind with your rent.

The Financial Services Authority's regulations apply to sale and rent back schemes. These should ensure some protection for you if you decide to sell your home to one of the schemes, but there may still be a great number of pitfalls to consider, such as:

• you will most likely be offered less money than if you were selling your house on an open market,
• you will have very little security of tenure after the initial fixed term of tenancy, that you agreed on sale, comes to an end,
• you will be vulnerable to eviction, as your new landlord will have the right to terminate your tenancy at the end of the fixed term (usually for five years),
• your rent may equate to the same amount as your current mortgage payments,
• your landlord may increase your rent, which can result in you accruing arrears even after the sale,
• you may not be entitled to housing benefit to help with the rent,
• if a private company goes bankrupt after buying your home, the property will usually be repossessed by their lender.

If you are considering selling your home through a sale and rent back scheme, speak to an independent adviser before you sign up to anything. Specialist debt advisers can assess your situation in full and help you work out a better debt management plan to get you out of difficulties.

Telephone Housing Rights Service on 028 9024 5640 if you need mortgage debt advice or search our Advice Services Directory to find an advice centre near you.