(a)they can not afford their mortgage or debt payments so they want to pay off their debts by using the equity in their property without remotgaging or moving out.



(b)they have a lot of equity in their homes that they want to release (for their retirement, for comfortable living etc) without moving out or remortgaging.

So some people do it out of necessity and some people do it as a lifestyle choice; they are asset rich and cash poor and chose to access the cash in their property whilst continuing to live in it.

The people who sell and rent back out of necessity are normally in one of the following situations:

*Facing repossession

*Experiencing financial difficulties (due to a whole host of reasons)

*Ill health

*Separation or divorce

*Bereavement

Obviously this does not cover everyone but these are the main reasons behind the forced sale category.

What other options are there?

For those who are not in the forced sale category then a similar option could be a reversionary scheme whereby the owners sells their property to a reversionary scheme operator who then lets them live their rent free indefinitely. Sounds great except that the house is bought way below its market value depending on the age of the owner and the owner received little or none of the sale money (this is used to pay their rent). The scheme operator purchases the properties for a small percentage of its actual value because they take the risk that the previous owner will not live there for a very long time (i.e. they will die at around a certain age). Therefore, if the previous owner wants cash for themselves or to pass onto their family they may chose the sale and rent back option whereby they get more money back (although they have to pay a higher rent to stay in their property).

For the forced sale category other options include remortgaging but to pay off debt sand keep ownership of the property. However, many are in the situation because they have remortgaged so many times they can not afford the payments anymore and lenders will not allow then to remortgage. Others have the option to remortgage but see the danger of increasing debt to pay off other debt they are struggling with.

What price will sale and rent back companies pay?

It will vary between companies but you should be looking to get between 70-85% of the market value of your property if you went down this route. A reputable sale and rent back company will also pay the legal costs of the seller and all valuation fees. Note that the seller will not be liable for estate agent costs or HIP fees so there is extra savings for them here meaning that the discount is not harsh.

What rent will they charge?

The rent charged will depend on the sale price of the property. Some people want very cheap rent so they may negotiate to sell their property for at 70% of its value in exchange or cheap rent. However, even if people sell at the maximum price offered by the sale and rent back company then the rent charged is normally cheaper than previous monthly debt payments. If this was not the case the previous owner may not be able to pay the rent so there would be no point in doing the deal.

Beware

It is important to note that regulation is still in the pipeline for this industry and you should be aware that they are some unscrupulous operators in this field. If you go down this route make sure:

*You do not pay for any valuation fees ever. These should be paid by the sale and rent back company but some pass this on to the seller.

*You do not pay more than 500 GBP of legal costs for the sale (these should cover all your legal costs and the best companies pay this)

*Get the offer in writing including the future rent payments.

*Confirm how much rent will increase every year you live there.

*Ask for the contact details of previous customers to see if they are happy with the service

*Research the company to see if they have been many complaints about them

*Confirm the company is with one the sale and rent back associations such as the National Association of Sale and Rent Back (NASRB).