A growing number of homeowners who are falling behind with their mortgage payments are turning to companies which offer to buy their home for cash, at a big discount, and rent it back to them.
Some of these 'Sale and Rent Back' schemes have been accused of charging inflated rents and not offering a secure tenancy.
The National Association of Sale and Rent Back (NASARB) and The Property Buyers Association (PROBAS) are devising voluntary codes of practice which they hope will protect consumers and ensure they are treated fairly.
Have you any experience of 'Sale and Rent Back'?
Would you consider using such a scheme?
What are your views on codes of practice?
Is a voluntary code of practice ever enough to protect consumers or is regulation the solution?
We asked for your comments - a selection of which are below - the debate is now closed.
I purchase properties in the Yorkshire area along with my business partner. We aim for a purchase price of around 75% of the market value and prefer "sell and rent backs" as the existing owners would be more likely to respect the property, we do not have to actively seek new tenants, and it causes minimal disruption to the existing owners. We need to achieve the discount to pay the relevant legal fees and so that there is a pot towards immediate/ongoing repairs. Unlike some other investors we generally fix the rent for a period of two years (if this is what the tenants want), adjust rents after this period in line with market rates, have good relationships with our tenants and have agreed payment breaks in the past. We also allow the home owners to contact our existing "sell and rent back" clients if they so wish. We keep as much income generated from our investments in the business so there are always funds available for unpredictable repairs, etc. Some businesses spend all the income and live the high life - this is a major contributory factor in relationship breakdown between the tenant and the business and is a recipe for disaster. If you are thinking of "sell and rent back" do your research. Choose a reputable person or business that is successful at what they do. Do not necessarily choose the cheapest deal. Get a few offers, meet with the prospective buyer(s) - this is essential. You can get a good impression of someone face to face. Ask as many questions as you can think of and ask to speak to existing clients of theirs. I hope this helps.Nathan Forrest, Sheffield
A big problem is that people who have come unstuck financially after buying their council houses, think that they are going back to the position they were in before buying. They ignore the small print that states the type of tenancy they will have will be much, much less secure.
Russell Cavanagh, Sheffield
"Sale and rent back" is a mixed blessing. It is an excellent idea to enable people with genuine mortgage difficulties to stay in their existing home, but only as a last resort when other ways of resolving the problems have been eliminated. Your contributor correctly pointed out that some companies in this market are better than others but did not give any advice on how to find the good ones. Otherwise, people in this situation who will be desperate for any solution could end up being even worse off.Jackie Grey, Guildford
This market seems to have grown very fast, and all the papers are full of ads for them. Given there is so much competition, it seems likely that over time they will have to offer a better deal, or a competitor will take more business. The fact that these businesses are in the spotlight and codes of practice are being put in place seems like a move in the right direction. At the end of the day, rent back is just one option for people in difficulties, no one has to accept any offer made.
Will C, London
I represent mortgage lenders at possession hearings. In my experience many borrowers who have previously ignored the possession claim make eleventh hour applications to postpone eviction on the basis they are selling to a buy to let company. These schemes allow borrowers to continue their state of denial of what is happening to them to the extent that they refuse to acknowledge that the property will no longer be theirs. They see it as a way of staying in "their" home. In fact they will never be able to afford the rent and will have given up whatever equity they have in the property. In almost all of the cases I come across the borrower would be better off with the lender taking possession, selling then passing any surplus proceeds to the borrower. What is most alarming is the number of cases where people have sold through these companies but the new owner fails to pay the mortgage leaving the once owner but now tenant high and dry with no standing even in the possession proceedings.Bob
My mother-in-law did this. The company gave her 60% of market value, with an option to collect the remainder after so many years. They then increased the rent by 20% after a few months, she couldn't afford the payments, and the option became void because she missed a payment. After two missed payments, she was evicted and ended up with nothing. Be warned - don't do it.
I see nothing wrong with these schemes, provided there is a voluntary code of conduct: as ever, the mantra should be buyer/seller beware. If someone has got themselves into financial trouble and prefers sale and leaseback to the (generally worse) option of repossession, it is their responsibility to check they are happy with the terms of the deal, including the nature of the tenancy agreement. Perhaps one useful condition of the voluntary code should be that the seller is given guaranteed access to two hours of time with an independent financial advisor, who will advise them about the implications of what they are doing? The cost of this advice should fall on the seller if he or she subsequently decided not to go ahead with the transaction. I see no reason at all why the tenancy should not be an assured short hold tenancy, which is essential to prevent a return to the bad old days of rent control and sitting tenants. Millions of other people already rent on this basis, so why should the "sale and lease back" tenants be any different, just because they once owned the property?Tony
Sale and rent back is simply a get-rich-quick scheme to allow the greedy to prey on the vulnerable. Clearly, a scheme where the prospective landlord can set the purchase price, the rent and the letting terms with little in the way of regulation, is open to abuse.
I found the debate on the issue of sale and rent back very interesting. In my home town there are many companies offering this service and I have no doubt that some offer better deals than others. However for them to make a margin they cannot give the market value of the property to the home owner. Together with the costs associated with buying a property (legal fees, stamp duty, etc), any interest they may be paying on borrowing I would think that between 65-75% of the purchase price is fair. I found it interesting that some people found it unfair that the buy and rent back companies would not offer open ended, long term leases. If such a tenancy was offered then I would consider the property not to be purchased with vacant possession and I would only value the property at half its market value. It seams to me that some people get themselves into considerable debt and then want their cake and eat it, you cannot expect to sell your house for market value and then encumber the property with an open-ended tenancy.Dan Ingram
As repossession figures do not include those who have entered 'sell and rent back' schemes, can anyone provide an estimate of how many people sold their homes using one of these schemes last year?
How can people expect security of tenure after defaulting on their mortgage? There is no incentive to live frugally enough to pay the bills if someone else is there to bail them out and ensure they can continue to live in their existing home indefinitely. Landlords need a commercial return and the inflated prices paid by inexperienced buy-to-letters could not be sustained. Now they are out of the equation, the professional landlord will only pay enough to ensure that the rent generated provides a viable return - hence the low 'Sale and Rent Back' purchase price, particularly in a falling market. The alternative is a huge increase in repossessions where the landlord picks up the same property at auction for a realistic price but is free to choose his own tenant and terms. Either way, house prices are coming down from their artificially high levels and there will be casualties.Cathy
I run a Sale & Rent back company and we are constantly working towards improving standards in the sector, however as long as there is no regulation, anyone can set up as a provider, no matter what their experience, motivation or asset backing is.
It is about time that companies are vetted and a code of conduct is introduced that will stop buy-to-let landlords using this as a cheap way to build up a portfolio.
I listened to the sale and leaseback item this morning and would like to point out that my firm specialises in this business and offers a lifetime lease to the former owner, where they are afforded full protection under the rent act. To the best of my knowledge we are one of the only companies that operate in this way. We often hear from clients that other companies have offered them a lifetime lease, then they discover as negotiations progress that this is an Assured Shorthold Tenancy for a limited term only, but with a verbal promise from the company concerned that the tenant can remain in the house for as long as they like. Quite clearly this gives them no protection beyond the initial term. I think it is important for you to know that there are some companies who do offer a fair system with a genuine secure lifetime lease.
The comments we publish are not necessarily the views of the BBC but will reflect the balance of views we have received. It is helpful if contributors state if they work for any organisation relevant to an issue discussed. Readers should form their own views on whether messages published represent undeclared interests, or views prompted by a common source.