17 Apr Selling your home and renting it back: Is it a good idea?
In the face of financial difficulties, as a homeowner might consider various options to manage their mortgage payments. One such strategy is the sale and rent back (SARB) scheme. At Home House Buyers we strongly suggest reading this article all the way through as in such an arrangement, a residence is purchased by a property investor, who then leases it back to the original owner. These sale and leaseback programmes are typically targeted at homeowners facing financial challenges. Generally, the properties are acquired for a fraction of their market value, often between 60% and 70% Leaving you severely out of pocket.
This article explores what it entails to sell your home and then rent it back, highlighting the risks and regulations involved and looks at an alternative way to get the best return for a quick sale.
A brief history of the sell and rent back industry
The concept of sell and rent back began to take shape as an unregulated industry during the build-up to the credit crisis in 2007-08. As house prices soared in the early 2000s, many homeowners found themselves unable to keep up with mortgage payments and turned to sell and rent back as a solution to stay in their homes. Others saw it as a means to access the equity that had accumulated due to the housing market boom.
With the increasing popularity of these schemes, the industry began to attract less reputable firms. Unfortunately, these companies often misled families with promises of long-term tenancies, only for these families to be evicted soon after the sale was completed. Additionally, there were reports of rent prices being hiked to levels beyond affordability and properties being neglected and falling into disrepair.
The negative practices of a few unscrupulous operators quickly tarnished the industry’s reputation, especially after media exposure highlighted these issues.
In response to these problems, the Financial Services Authority intervened in 2009, putting a temporary stop to all sell and rent back activities. This regulatory body later evolved into what is known today as the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
From 2010 onwards, companies in this sector were required to comply with a stringent regulatory framework, which significantly reduced the number of operators in the market.
However, adherence to the new regulations was not universal. In 2012, the FCA conducted an investigation which revealed that many of the transactions were either unaffordable or inappropriate given the homeowners’ financial situations. The investigation also found issues with the standard of tenancy agreements provided, alongside unethical practices like unjustifiable price reductions.
This history underscores the importance of stringent regulations and oversight in maintaining ethical standards in the sell and rent back industry.
Regulatory framework
As mentioned, the sale and rent back market in the UK is regulated by the Financial Conduct Authority (FCA). The regulations aim to ensure fair treatment, requiring firms offering SARB schemes to advise clients appropriately, making clear the financial implications and ensuring the arrangement is suitable for the homeowner’s circumstances.
What to Do Before Considering a SARB?
Seek Independent Advice: Before entering into a SARB agreement, it’s crucial to seek advice from an independent financial advisor or a debt advisor. Our property experts offer free guidance and can help you understand all your options.
Research the Company: Ensure the company offering the sale and rent back scheme is registered and regulated by the FCA. Check their credentials and read reviews or testimonials from other customers.
Understand the Terms: Carefully review any agreement before signing. Understand the terms of your tenancy, the rent, potential rent increases, and the conditions under which your tenancy might be terminated.
Explore Alternatives: Consider all other options before proceeding with a SARB. This might include restructuring your mortgage, seeking government assistance, or exploring other forms of debt relief.
What are the main pros and cons of an SARB?
| Pros | Cons |
|---|---|
| Immediate Financial Relief: Quick access to funds, which can alleviate immediate financial burdens such as debts or the threat of repossession. | Lower Sale Price: Typically sell property below market value, losing significant equity. |
| Avoidance of Moving Costs and Disruption: Remain in a familiar environment, saving on moving costs and avoiding the disruption associated with relocating. | Dependency on the Landlord: Landlord controls the property and can decide to end tenancy or sell the property, forcing the tenant to move. |
| Speed and Convenience: Typically faster than selling on the open market, beneficial in urgent situations. | Increased Rental Costs: Renting could be more costly than previous mortgage payments and rents can increase, possibly unsustainable. |
| Loss of Homeownership Benefits: Loses potential future property value appreciation and ability to leverage property as a financial asset. | |
| Regulatory Risks: Significant legal and financial risks if the firm is not properly regulated or fails to adhere to regulations. |
How can we help if you are looking to sell your house and rent it back?
At Home House Buyers, we have positioned ourselves as a notable entity in the property market by offering a dual service: purchasing homes for cash and assisting homeowners in finding alternative rental accommodations. This service is particularly advantageous for individuals facing urgent financial difficulties or those needing to sell their properties swiftly without the typical complexities of the real estate market.
This service is particularly beneficial for those who are downsizing or need to vacate their property swiftly. Let us take care of the practical details while you focus on your new beginnings.
Fast cash property purchases
Home House Buyers stands out by providing a straightforward, cash-based purchasing process. This approach eliminates many of the common delays associated with property sales, such as waiting for buyer mortgage approvals or navigating the lengthy chains that can often complicate traditional property transactions. By offering cash for properties, Home House Buyers ensure a faster transaction, enabling homeowners to access the funds they need in a timely manner. This can be particularly critical for those looking to resolve financial issues quickly or to avoid potential foreclosure.
Can you help with rental accommodation?
As soon as we agree a price with you, we can help you transition smoothly by assisting in finding suitable rental accommodation. By helping you relocate to appropriate rental properties within the area, Home House Buyers provides a comprehensive solution that not only secures the financial aspect of the sale but also ensures that the sellers’ living arrangements are settled comfortably and conveniently.
This integrated approach not only simplifies the property selling process but also provides peace of mind to homeowners, knowing they have both immediate financial relief and a stable living situation post-sale.
Can you help with rental deposits after I sell my house?
We also recognise the challenges associated with securing a new rental property, particularly when it comes to meeting the upfront financial commitments such as deposits. To support you in this aspect, we offer assistance with deposits for your rental property going forward. Our aim is to alleviate the financial burden during the transition from homeowner to tenant, ensuring that you can secure a suitable rental without undue stress. This support is part of our commitment to providing a holistic service that covers all aspects of the sell and rent back process, making your move into rental accommodation as seamless and manageable as possible.
Can you help with storage costs and clearance while I settle into my new home?
We offer comprehensive house clearance and storage solutions. Whether you need to declutter before a sale or require temporary storage for your belongings during the move, our team is ready to assist. We can coordinate the removal and safekeeping of your items, ensuring that your move is as smooth and stress-free as possible. This service is particularly beneficial for those who are downsizing or need to vacate their property swiftly. Let us take care of the practical details while you focus on your new beginnings.
Maintaining Employment
Job continuity is another critical factor that our clients face when deciding to sell their home. We have facilitated the sale and subsequent rental of properties in the same areas to ensure that homeowners can continue working at their current jobs without the burden of a lengthy commute that often comes with relocating. For example, a couple in Manchester was able to avoid potential unemployment thanks to our tailored service. After selling their home to us, we helped them find a rental property within walking distance to their workplace, minimising disruption in their professional lives.
These examples highlight our commitment to not just providing financial solutions through property sales, but also ensuring that our clients’ personal lives remain as unaffected as possible. By focusing on keeping families in their local areas, we help maintain the delicate balance of home, school, and work life during what can be a very challenging time.
Preserving School Placements
For families, the continuity in education is paramount. We have successfully helped numerous families sell their homes and find rental accommodations within the same school districts. This ensures that children can continue attending their current schools without disruption. One notable case involved a family in Leeds who faced financial difficulties due to an unexpected redundancy. Through our quick and efficient sale process, we managed to secure a buyer for their home within weeks, and helped the family rent a nearby property, ensuring their children remained in the same school, thus preserving their educational and social stability.
Contact Our Property Experts Today
If you are considering selling your home and need guidance on how to proceed, especially if you wish to remain in your local area, our property experts are here to help. We have a vast network throughout the UK, which enables us to provide comprehensive support regardless of your location. We invite you to get in touch with us to discuss your specific requirements and explore how we can assist you in your current situation. Whether you’re facing financial challenges, need to adapt to changing family circumstances, or simply looking for a change in your housing arrangement without disrupting your daily life, our team is equipped to provide tailored advice and practical solutions.
Contact us today on 0800 612 1366 to start a conversation about your property needs. Our knowledgeable team, backed by our extensive network across the UK, will work closely with you to understand your situation and offer solutions that are not only viable but also considerate of your life’s continuity in terms of employment, education for your children, and community ties. Let us help you navigate the complexities of selling and renting back so you can focus on what matters most to you and your family.
Carla Ward is a professional property content writer at Home House Buyers with over 6 years of experience. She specialises in crafting engaging property listings, market analyses, and home-buying guides. Carla’s passion for real estate and dedication to high-quality content help clients make informed decisions. In her free time, she enjoys renovating vintage homes and cycling through the Yorkshire countryside.