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Sell And Rent-Back Option Details
By
Clayton Calisson |
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Despite the growing popularity, a Rent-Back isn’t everybody’s best option. This article aims to give all the facts and information one needs to make the decision that’s best. Here we address your concerns; explain the plan details, including its advantages and disadvantages.
Recently there’s been bad press regarding some sections of the sell and rent back scheme. In an industry that is currently unregulated, there’s the opportunity for some individuals to act unethically or unprofessionally. A Rent-Back is a long term commitment so you should look at how established the company you are dealing with is and what guarantees they offer. Speak to as many companies as possible and whether you use us or another company, here’s what to watch out for:
• Does the buyer need a mortgage? Very few buyers have cash. They have to apply for a mortgage, get their lenders’ approval and then wait for the mortgage offer to be issued. This all takes time. We’ll pay cash for your property so there’s no delay.
• Your long term security of tenure. This is a long term commitment for any purchaser so you’ve better protection with a large well funded organisation than with an individual. There are also some companies offering a guarantee for a few years. All they usually offer is an intention to renew the tenancy every year, not a guarantee of security of tenure.
• Franchised operations. Groups of buy-to-let investors club together to share marketing costs. Your details would be handed to a local franchisee who’d buy the property themselves. It is possible that they will be honourable and will have the financial backing and experience to offer you a long term solution but there’s risk involved.
• Be wary of percentage quotes. Some companies quote a percentage of the market value as their purchase price. This can be misleading when a high percentage is quoted, but it’s based on a low valuation. When quoting a percentage it should always be based on an independent Chartered Surveyor’s internal and external valuation.
Make sure the company assures your complete confidentiality. Ideally, they do everything by post and over the phone. There’s no sale board, no property details in agents windows, in the local paper, or on the internet. As far as anyone else is concerned, it’s as if nothing has happened.
Find out whether a company guarantees a rental figure to avoid surprises in the future. A sell and rent back rental formula is included and agreed by our solicitors and we cannot alter this during your occupancy of the property. We aim wherever possible to agree on rental figures below the average for similar properties in your area.
Consider a situation when you may have difficulty paying the rent. Ask the company what they can offer as a solution, for instance, some companies may offer to claim Housing Benefit.
Find out whether a company guarantees you an option to buy your property back if you want so later. Some may offer an on-going Buy-Back option if requested at the outset, which they can agree with you prior to purchase and will be legally binding on them at any time during your occupation.
To reduce your costs, look for no set-up fees, estate agents fees and no home information pack needed as this is an off-market transaction. Company should be able to pay all your legal costs too, including that they subsidise the valuation fee which is payable on application and is refunded to you in full on completion.
By law, after the first year, you would not have a guarantee of tenure. If you decide to go for the scheme, you can get some piece of mind by going for an established company with many years in business. For instance, a company can offer a legally binding side letter stating that if they were ever to ask you to leave; they’d have to pay you a penalty of £10,000. A serious business should be aware that this side of the scheme may put clients off, so look for a company that are open to suggestions on making it more comfortable for you.
Home Cash Release is not ideal for everyone’s circumstances so before you make a decision here’s some disadvantages to consider.
• You’ll be selling your property for less than you’d receive on the open market although you’ll have no legal fees, estate agents fees, home information pack fees or excessive mortgage payments to pay.
• You may lose means-tested state benefits that you’re currently entitled to although the plan will not affect your State Pension.
• We recommend that you discuss your intentions with your family before you proceed as you’ll be selling the whole of your property so neither you nor your beneficiaries will benefit from any increase in its value in the future.
Author's Bio
Clayton Calisson is an expert in sell and rent back scheme at Beneficial Homes. For further information, advice and free estimates, visit www.beneficial-homes.co.uk.
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