Sell And Rent Back Schemes Are Not Simple
The Sell and Rent back appeals cash strapped homeowners
. Rising rates of interest are putting the squeeze on homeowners holding variable rate mortgages. This alternative offers homeowners sale of their property at a price that is typically below market rate in exchange for rent. Under a tenancy agreement you can rent the property at market rate.
The government is not involved in this arrangement. Homeowner should protect themselves by seeking an authorized provider according to the Financial Services Authority that has started regulating this market by the end of June 2010.
The FSA requires that tenancy agreements be for a 5 year fixed term. There should be the possibility to renew them. You are to be given advice free of charge which should include information about all the choices that may be available to you.
Clear information about the terms of the transaction should be provided. The providers are to make you understand the risks involved. Their offerings must meet FSA requirements.
You can also check to see whether a firm is authorized to operate. Any complaints of unfair treatment can be directed to the Financial Services Ombudsman.
Your best interest is protected with a 14 day cool off period allowing you more time to get independent advice to support your ability to make an informed decision. There are rules governing what happens if you get behind on your rent payments after the sale. You can not be charged a monthly arrears charge if you made an agreement for repayment of the arrears.
The repayments has to be made first towards the missed monthly rents. Charges for arrears are secondary payments. The eviction option is to be only the final choice. The provider must record all phone calls about discussion of arrears and hold this record for a period of three years.
Potential Benefit of the schemes
With this option people can remain in their homes and avoid repossession trauma and there are no expenses that need be paid for a repossession hearing. The released equity after the sale can be used to pay off debts. There is speedy resolution of a tricky situation for those fearing home repossession. Many options offer turnaround in a week. There will be discretion and no stigma is associated with this process. Moreover, any disruption of routine is avoided.
They offer a quick. Many schemes promise a one week turnaround which is tempting for people who want to unburden their debt. They promise discretion and an absence of social stigma. And most importantly, there is no disruption of family routines that sale and moving out process would require.
Possible risks of sale and rent back schemes
A housing benefit may not be available to you thereafter. Whether it is available may depend on your not being able to afford your home at all, and facing its loss without this transaction. Your subsequent housing benefit entitlement will depend on whether the council believes you did everything possible to avoid this sale of your home and whether you would qualify under the income and capital rules. There is a chance, you may not be entitled for five years to claim the benefit.
This can be during and after the fixed term of your tenancy agreement. You could be evicted during the fixed term of your agreement should you breach its conditions, such as falling behind on your new rental payments.
You can look for providers in different ways. Check online and ask your mortgage provider about such a scheme. The local council may have information about reputable providers in your region. You should consider several providers. Check Companies House for their financial information. Ask them for references. Make your selection by selecting the one offering the most agreeable arrangement.
Know that a housing benefit may not be available thereafter. It will only be available thereafter if you could not afford your home anymore, and would have lost it had you not entered into such a transaction. You will have to demonstrate that selling your home this way was your only option. If you select this course of action, your housing benefit entitlement will depend on whether your council believes you did everything possible to avoid selling your home and whether you qualify under income and capital rules. There is a possibility, for five years you may not be entitled to claim this benefit.
Choosing a provider and relevant considerations
Once you certain you have no other option with independent advice, you can seek this option by looking for providers. Check the internet. See if the mortgage provider offers this option. The local council may be helpful in locating reputable providers in your area. You should consider a few. Check with Companies House about their financial stability. Ask for references. Select the one that offers the best arrangement for your needs.
Should the provider get into financial hot water, are the tenant homes protected by any insurance policy or bond.
Obtain written confirmation of all charges you will be expected to pay and important details, including future rent increases, how often they can be increased and how will they be calculated. You should check the what percentage of the market value will you be paid. Will valuation be done by an independent surveyor. Note, estate agents will provide this service for free and you can use this service. What type of tenancy would you have. Remember that with an assured shorthold tenancy you may be evicted without legal reason upon expiration of the fixed term. How are rent arrears handled by them. What procedures do they follow. Do they offer any support for those who fall into arrears. What is their eviction rate for rent arrears. Can you buy back a stake in the property should your financial circumstances improve in future. If so, under what conditions and what would the charges be. Who determines property value in that case. What happens in the event of a dispute. What would happen if the company develops financial troubles. Do they have insurance or a bond to protect tenant homes in this eventuality. This option can be the right choice for some homeowners. However, they need to be aware of the pros and cons before taking this action.
by: James Monk
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