Sale and rent back, also known as mortgage rescue, leaseback, and repossession prevention is a small but expanding market. Its profile has grown rapidly over the last year due to rising repossessions (which increased demand for it) and the FSA study into whether it needs to be regulated. There are slight variations on what each sale and rent back company can provide but essentially their services are pretty similar.
How easy is it to rent back my home?
It is is pretty simple: a owner occupier sells their property but remains living there as a tenant. The company or individual who buys the property becomes their landlord on completion of the sale. Normally, the property is bought at a price below its market value (typically 15-20% although this discount has risen recently as prices have continued to fall). The future rent is also agreed before the sale and is typically close to the market rent of the property (i.e. the rent that could be achieved if rented on the open market).
From the sellers point of view they have several benefits from such an arrangement. Firstly, they normally chose this option as they are in some sort of financial difficulty so this option allows them to release equity in their house, pay off their debts and remain in their home. They avoid decreasing their standard of living by being forced to move into inferior housing and do not suffer the potential embarrassment of having to move home. The speed of the purchase means that those facing eviction can avoid repossession. Those with families can keep their kids in the same school and the parents do not have to change jobs. In all likelihood the money they lost selling their property at a discount would have been lost anyway if they had been repossessed and their property was sold at auction or on the open market by the mortgage company.
For the purchasers point of view they manage to acquire a discounted property with a tenant already living there. They do not have to spend money trying to get a new tenant after they buy. Many rent back tenants also tend to stay a long time so this further reduces void periods for the landlord. The tenant is also likely to treat as their own home and look after it.
Of course, the fact that properties are sold at a discount mean it is not the best option for all owner occupiers. However, they do represent a viable option for those who want to release the equity in their homes to overcome financial difficulties and repossession.
