Sell and Rent Back –
The Complete Guide

Thinking about selling and renting back your property?

Also known as “SaRB”, “sale and lease back”, “sale and rent back” or “sell and remain in your home”, in this post the quick house sale team at Property Solvers delve into how these schemes work.

We also explore the pros + cons, how the industry has changed over the years, regulation and how to ensure you get the best deal.

Scroll further down to see some alternative suggestions as well as an extensive list of resources if you’re facing some kind of financial difficulty (and feel like this may be your only option).

How Does Sell and Rent Back Work?

The basic idea is that you sell your property directly to an accredited private house buying company. The price you’ll get is usually below market value.  You then rent it back for a 5-year fixed term.

The property buyer (and new landlord) takes on the homeownership responsibilities such as insurance, repairs, maintenance and replacement of expensive items.

Other times, there are can be an option agreement in place where you can buy back the property at a later date. You may also be able to enter into shared ownership agreement with certain organisations.

Note that these private schemes are different to mortgage rescue and other homelessness prevention services offered by local authorities / housing associations.

Pros and Cons of Sale & Rent Back

Using a private property buying company that offers “sell and rent back” has a number of advantages:

• You can release the equity in your home quickly as tax-free cash to spend as you please;
• Remain in your home as a tenant for at least 5 years;
• There will be no concerns about having to pay for the property’s upkeep and repairs;
• Replacing big ticket items such as boilers, electrics, kitchens and bathrooms will be the new landlord’s responsibility;
• There will no longer be any buildings insurance costs;
• You can forget about other homeownership risks such as rising interest rates and house price crashes;
• The sale is usually much quicker than using an estate agent.

Here are some of the downsides:

• There are only a handful of companies that can legally offer this service;
• You lose all ownership rights and have no benefits from future rises in the property’s value.  You cannot gift the property to your children in the future, for instance;
• The property’s sale price will be under its true and fair value;
• There is still the possibility of eviction, especially if you breach any terms of the tenancy agreement;
• The landlord may increase the rent during the term of the tenancy (which you would have no choice over);
• It may be challenging to receive Local Housing Allowance (housing benefit) and Universal Credit when you become a tenant in a house you previously owned;
• If the new owner gets into financial difficulties, you may be evicted if the property gets repossessed.

A Brief History of Sell and Rent Back

Sell and rent back emerged as an unregulated sector in the build-up to the credit crisis of 2007-08.

Many homeowners started to struggle to afford their mortgage payments and chose this option as a way to remain in the property.  Others simply wanted to release built-up equity resulting from the early 2000s house price boom.

As the demand started to grow for this type of service, unfortunately, a handful of unsavoury firms began to emerge.

Families were told they would be entering into long-term rental agreements, only to be evicted shortly after the property was sold.

There were also instances of landlords increasing rents to unaffordable levels and allowing properties to fall into disrepair.

It didn’t take long for a few “bad apples” to stain the reputation of all involved in the industry at the time, especially once the media caught on to what was happening.

As a result, in 2009, the Financial Services Authority halted all sale and rent back operations.  This body is now part of the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).

From 2010, providers had to adhere to a strict regulatory framework which – in turn – culled much of the industry.

Those that did remain often didn’t play by the rules. Indeed, a 2012 Financial Conduct Authority investigation stated that many of the property sales were unaffordable or inappropriate given the sellers’ circumstances. There was also evidence of tenancy agreements not meeting the appropriate standards alongside price drops and other unethical practices.

Sale and Rent Back FCA Regulation

In addition to extra processes, procedures and expenses that regulated sell and rent back firms must adhere to, some of the requirements set by the FCA include:

• No dropping of promotional leaflets / marketing material through letterboxes;
• Ensuring that homeowners can afford to enter into a rental agreement and this will not affect any entitlements to benefits;
• Ensuring that all other options are exhausted;
• Offering a “cooling-off” period of at least 14 days;
• Providing tenancies with a fixed 5-year minimum term (this should be presented before the sale happens);
• Confirming that there will be no extra charges for any rental arrears. Eviction must always be the last resort in such circumstances;
• Undertaking an independent valuation of the property;
• Making sure that the seller can genuinely afford the future rent;
• Providing a clear and accessible complaints procedure;
• Providing complete transparency regarding fees and purchase price discount;
• Guaranteeing that price will not be further dropped at the last minute (prior to exchange of contracts, for example).

Things to Check with Sale and Rent Back Firms

Using a sell and rent back firm comes with a number of risks worth bearing in mind.

Before going ahead, we’ve put together a series of steps you can run through…

Alternatives to Sell and Rent Back

Given the challenges of finding a sell and rent back firm you can trust, there are a number of other options worth considering:

• Sell on the open market (i.e. through an estate agent or auction house) and then look for a rental property – Although the sale will take longer, you’ll ultimately end up with more money to spend as you wish. When renting, many properties you will come across would have been recently refurbished and ready for you to move into;
• Remortgaging your property – should there be a sufficient amount of equity, refinancing could be an option providing you can afford the increased mortgage payments.  Some people, for example, transfer ownership to another partner who will become jointly responsible for the mortgage;
• Sell and rent back to the council – this would depend on how much appetite your local authority has. Many are actively looking to buy houses, but may not be in a position to rent back;
• Remortgage your property onto a buy-to-let loan – the idea is to rent your property and look for someone else to live.  You can then potentially move back in at a later date.  However, be cautious and consider the financial, practical and tax-related risks here;
• Equity release schemes – whilst it is important to be very careful and read the small print, these can be a workable way to keep your home and receive some of the locked-in capital;
• Consider renting out your property and earn an income (to pay for a new place to rent) – in this scenario, you would need to request a “consent to let” from your mortgage lender or remortgage with a specialist buy-to-let lender;
• Take on a lodger to help cover your monthly mortgage payments – be sure to explore the available tax breaks should you go down this route
• Speak regularly with your mortgage lender if you are in arrears – remember they need to adhere to rules that give you the best chance of catching up (known as “pre-action protocols”);
• Pay down your unsecured loans – minimising your credit cards, car or personal loan debts can have a majorly positive effect on your household budget.  It is often worth approaching your lenders to discuss a manageable payment or consolidation plan;
• Sell your property to a private buyer such as Property Solvers – we pay cash, charge no fees, will work to your timescales and will help you find a suitable rental property.

Seeking Financial Advice – Resources

If you are in mortgage arrears (or another form of financial distress), please do not think you are obliged to use a sale and rent back firm.

Below are some useful links from organisations with no hidden agenda:

Does Property Solvers Offer Sell and Rent Back?

Property Solvers operated in the sell and rent back industry from 2003 until 2008.

Once the regulation came into force, the company decided to focus on the following:

• Quick cash home buying (with vacant possession)
• Property auctions
• Estate agency sales.

Whilst appreciating that times change, we’ve always felt disappointed that a few unscrupulous actors caused such a huge overhaul of a service for which there remains clear demand for.

Indeed, by and large, it’s unfair to tar all firms operating in this space with the same brush.

We (and many within our network) have properties rented to former owners who are very happy and wouldn’t change a thing. Our rents are often lower than market levels. The quality of accommodation we provide is demonstrably better than many social and council housing providers.

A Previous Sell and Rent Back Client

With regards to the prices paid, it’s worth noting that many thousands of properties are sold every month below market value at auction and privately. Accounting for all the regulations and tax burdens, owning rental property is far from cheap and not as profitable as commentators realise.

It’s our view that much of the criticism towards the sector stems from the anti-landlord sentiment that’s unlikely to fade away.

Contact Property Solvers

Should you wish to discuss any aspects of selling your home, please get in touch with us 24/7.

The team at Property Solvers will never put any pressure and fully understand if you’re simply seeing what your options are.