Private sale and rent back schemes

This content applies to England only.

Housing laws vary between England and Scotland. This page applies to England only. Get advice relating to Scotland

You should think carefully before signing up to a private 'sale and rent back' or 'sale and lease back' scheme. Although arrangements like these have helped some people to stay in their homes as rent-paying tenants, they usually offer very little long-term security.

Sale and rent back schemes buy your home and rent the property back to you. Most of these schemes are operated by private, profit making companies or individuals. They are very different to the Government’s mortgage rescue scheme.

Are private sale and rent back schemes regulated?

Following pressure by Shelter and other advice organisations, the Financial Services Authority (FSA) now regulates all private sale and rent back schemes.

The system for regulation was introduced on 30 June 2010. Schemes now have to follow certain rules and meet certain criteria. You can now check whether a firm is authorised, and can complain to the Financial Services Ombudsman (FSO) if you think you have been treated unfairly.

New rules on marketing have been introduced:

• Exploitative advertising and high-pressure sales techniques are banned – companies are no longer able to use misleading phrases like ‘fast sale’, ‘mortgage rescue’ and ‘cash quickly’ in promotional literature.
• Cold calling and dropping promotional leaflets through letter boxes are not allowed.
• You now have a 14 day cooling-off period to give you more time to get advice and make an informed decision.
• Companies must check whether the scheme is likely to be affordable and appropriate for you, and must make you aware of the risks involved.
• The tenancy you are offered must have an initial fixed term of at least five years.

There are also new rules on what happens if you get into rent arrears after the sale:

• The company must record all telephone calls relating to your arrears and keep the records for three years.
• You should not be charged a monthly arrears charge if you have made an agreement to repay the arrears.
• Any payments you make should be put towards clearing the missed monthly payments, rather than to arrears charges, which can be repaid later.
• Eviction should always be the last resort – all other options should be considered first.

Hopefully the new rules will mean that unscrupulous companies will no longer be able to operate. However, extreme caution is still advisable when it comes to choosing or using private sale and rent back schemes. Get specialist advice and talk to your lender to explore your other options before you make any decisions. Shelter's Homeowner Helpline may be able to help you.

What are the risks?

In some cases, a private sale and rent back scheme may be the right option but you should always get independent advice about both your finances and how your rights would be affected before you take any action. It is important to check that you will genuinely be able to afford to pay your rent under a private sale and rent back scheme and what your long term security would be under the new tenancy. Contact Shelter's dedicated homeowner helpline on 0300 3300 515 or use our directory to find face-to-face advice services in your area.

Be aware that there are significant risks involved:

• Schemes often buy homes at well below the market rate, so you could lose a large percentage of the true value of your home.
• You might still have to leave your home in future. You could be evicted after the initial fixed term has ended - or even before that, if you fall behind with your rent payments or break one of the other conditions of the tenancy.
• Many schemes give assured shorthold tenancy agreements to the former owners. This type of tenancy gives you very little long-term protection from eviction once the initial fixed term has ended, which can make it difficult to enforce other rights that you have.
• The rent you have to pay may end up being as much as your current mortgage payments. Rent increases may be very large. This increases your chances of getting into arrears after the sale.
• You may not be entitled to housing benefit (see below).
• If a scheme gets into financial difficulty after it has bought your home, your home could be repossessed by their lender.

What are the potential benefits?

There are some benefits to these schemes:

• Struggling homeowners get to stay in their homes, avoiding the trauma of repossession - although they normally stay on as tenants rather than as homeowners, and usually have little long-term security.
• Any equity you have can be released to pay debts (mortgage debts should always be your top priority).
• You would avoid the costs of a repossession hearing.

Would I be eligible for housing benefit after the sale?

Not necessarily - so don't assume that this will be the case! If you do sell your home through a sale and rent back scheme, your entitlement to housing benefit will depend on:

• whether the council believes that you did everything you possibly could have done to avoid selling your home and
• whether you qualify under the income and capital rules.

You may not be entitled to claim housing benefit for up to five years. See our page on housing benefit after a sale and rent back deal for more information about the rules, and get independent advice about this issue before you sign up.

What should I do before I contact a scheme?

To avoid losing out financially, you should consider doing the following:

• Pay as much as you can to avoid the build up of further arrears. If you do end up in court, the court will take this into account when making its decision.
• Get debt advice from a not-for-profit agency such as Shelter (call 0300 3300 515) or National Debtline. Specialist debt advisers can make a full financial assessment and help you work out a plan for clearing your debts and covering your living expenses. Most private debt companies that advertise for customers should be avoided, but if you do use one, always check exactly what you will have to pay for their service.
• Consider negotiating with your lender first - most lenders consider repossession to be a last resort and are willing to discuss other ways to make your mortgage more affordable.
• Get an independent valuation of the property from at leaset one established estate agency in your area, so that you can compare this with any valuation the mortgage rescue scheme gives you. You will nearly always be better off selling your home on the open market.

How can I choose a scheme?

If you have exhausted all of your other options, it is worth asking your mortgage lender if they operate this sort of scheme.

Alternatively, contact your local council to find out if there are any reputable schemes operating in your area.

Remember that schemes advertised in newspapers or on TV are usually profit-making companies and may not provide a real solution to your problem. Always take the following precautions:

• Speak to at least three providers.
• Check that they have a website and office address.
• Find out how long they have been operating for.
• check the FSA register to make sure they are authorised.
• Check out the company through Companies House to be sure that it is financially stable.
• Request a contact number for a referral point who has seen sales go through successfully.
• Request a contact number for a tenant who has experienced the process.

Always get independent advice before signing up for any scheme. You could contact Shelter's dedicated homeowner helpline on 0300 3300 515 or use our directory to find face-to-face advice services in your area.

What else should I check before signing up?

If, after getting independent advice, you do decide to opt for sale and rent back, be sure to get confirmation in writing of all the charges you will be expected to pay, including:

• the rent
• administration charges
• arrears charges
• legal and financial costs associated with selling your home to the scheme
• additional payments
• future rent increases - how often can the rent be increased and how will increases be calculated.

You should also check the following:

• What percentage of the market value will you be paid?
• Will the valuation be done by an independent surveyor? (If not, get your own valuation so that you can compare - estate agents will provide this service for free).
• What type of tenancy would you have? Remember that an assured shorthold tenancy does not give you much security as it means that you can be evicted without a legal reason once the fixed term has ended. New rules say that the tenancy you are offered should have an initial fixed term of at least five years.
• How many people have they evicted for rent arrears?
• How do they deal with rent arrears? What procedures do they follow? Can they offer any support if you fall into arrears?
• Can you maintain ownership of part of the property? If so, what would happen if you wanted to sell at some point in the future?
• Can you buy back a stake in the property if your financial circumstances improve? If so, on what terms and what charges might be involved? Who decides the value of the property and what happens if there is any dispute over this?
• What would happen if the company developed financial problems? Do they have insurance or a bond in place to protect tenants' homes?

You can download a leaflet from the Money Made Clear website for more information about sale and rent back schemes.