Sale And Rent Back:
Can It Be Done In 2024?

What is Sale and Rent Back in the UK?

So, what does “Sale and Rent Back” - otherwise known as “Sale and Lease Back” or “Seller Rent Back” - actually mean?

This name is fairly literal. Sale and Rent Back refers to a process whereby the homeowner first sells their property to a third party - usually a specialist home buying organisation.

At this point, the seller signs a tenancy agreement with the organisation acting as the buyer, so that they may rent the same property from that company in order to remain a resident.

What is a Sale and Rent Back
Agreement - and How Does it Work?

So, how does “Seller Rent Back” work exactly?

Well, at present, it doesn’t. This particular niche of the property industry was effectively brought to a halt in 2011 following an in-depth review into its practices by the Financial Services Authority (now the Financial Conduct Authority or FCA).

To find out why this happened, we should first explain a little of the recent history of Sale and Rent Back.

Sale and Rent Back companies were entirely unregulated up until 2009. However, this particular sector of the property industry was quickly growing in notoriety.

The practice’s increasingly poor reputation was due in no small part to the rise in prevalence

of numerous dubious methods - many of which amounted to scams.

These approaches were often employed by unscrupulous firms whose main intention appeared to be the hoodwinking and exploitation of homeowners in financial distress.

As a result of these apparent problems, the Office of Fair Trading (OFT) launched a study into the industry in 2008. This concluded the same year, and found a number of serious failings - leading to a recommendation of FSA (now FCA) oversight within the sector.

HM Treasury began to oversee the industry in 2009, with this jurisdiction passing to the FSA in 2010. From this point, any organisation or scheme offering Sale and Rent Back had to be registered with - and therefore regulated by - the FSA.

This requirement remained in place up until 2011/12, where a review found that “the majority of Sale and Rent Back sales were either unaffordable or inappropriate”.

To this end, new regulations were introduced - including a fundamental requirement for sellers to demonstrate clearly, and in a manner that was provable beyond doubt, that they were facing the repossession of their property and that they had been refused help by their mortgage lender.

Sale and Rent Back companies could now only register with the FSA if they met this requirement indisputably. When the FSA became the FCA in 2013, this legislation was upheld.

The aforementioned criteria, along with other strict conditions and significant levels of scrutiny from the FCA and other financial regulators, means that, in reality, no Sale and Rent Back firms have been able to practice legally since these changes came into force.

In fact, a Guardian article from February 2012 reports that the FSA undertook a review of all 22 regulated firms, and this resulted in it referring one firm to its enforcement division, while others “either stopped taking on new business or cancelled their permissions,” meaning that the practice of sale and rent back was effectively closed.

To this end, if you have been offered Sale and Rent Back services by a homebuying organisation or property investor, you need to tread very carefully - as the chances are that the company in question is not operating legally.

You can check the status of any firm of this kind by searching for them in the FCA’s register.

Alternatives to Sale and
Rent Back Schemes

There are other options available to you if you’re having financial problems and need to stay in your property. Firstly, you could speak to your mortgage lender. It might be a conversation that you’ve been putting off, but really, doing it sooner will be better for you. They might be able to give you a payment holiday whilst you sort out your funds, or set-up an arrangement if you’re in arrears.

And if you have other debts, it’s definitely worth talking to those creditors. It might be that a repayment plan can be arranged so that you can keep your home.

Or do you have a spare room to offer to a lodger? Their rent payments could help you with your mortgage repayments, but you’ll need to check the tax implications because this’ll count as an extra income.

Over 55s could have equity release options, too. This would enable you to raise capital from your home and keep living there.

The three main factors that determine how much equity you can release from your home are:
 

1. Your home’s value
   Equity release providers will carry out a valuation to work out how much equity you can release from it.
    
2. The equity you have in your home
   In simple terms, your equity is your home’s value, minus any debts you have secured against it. So if you have a property valued at £210,000, and there’s still £60,000 of the mortgage left to pay, your equity is £150,000.
    
3. How long you'll be living there
   Equity release providers need to estimate how long you will be in your home, which will be based on your age and your health. If you make a joint application it will be calculated based on the age and health of the youngest applicant, as they are likely to be living in the property the longest. 

Choosing equity release is a big decision, and you must seek professional advice before going ahead with it to find out if it’s right for you, but I only mention it because it’s another avenue to explore before committing to a sale and rent back scheme. Mortgage holidays, renting out a spare room, or equity release are alternatives to sale and rent back that could be more beneficial for you in the long run. 

Here are three more alternatives to Sale and Rent Back...

1. Transferring Ownership via Deed of Gift

If you wish to keep your property “in the family”, and if you would prefer to stay there and pay rent to its new owners, you might choose to give it to a relative as a “gift” and then rent it back.

Unless the intended recipient is a spouse or a civil partner, and/or unless your estate is worth less than the tax-free threshold of £325,000, giving a gift of this kind will likely incur an IHT charge.

However, IHT will not be charged if you live for more than seven years after giving the gift.

If you live for between 6 and 7 years after the Deed of Gift, tax will be payable at 8%. Between 5 and 6 years, it rises to 16%. Between 4 and 5 years it’s 24% and between 3 and 4 years it’s 32%. If you pass away within 3 years of the deed of gift, IHT is payable at 40%.

This system is known as “taper relief”.

Usually, IHT is payable by the estate of the deceased. However, if the combined value of the gifts given within the seven years preceding the donor’s passing was to exceed £325,000, IHT would be charged to the recipients.

The approach of transferring property to a family member via Deed of Gift - then renting from them - may also cause issues when it comes to your mortgage. This is because, if you still have a loan of this kind in place, it will usually need to be repaid before a new owner can take charge.

There are some circumstances in which it may be possible for you to transfer your mortgage into another person’s name. However, this depends on the type of loan you have, as many mortgage products do not allow this.

Some, on the other hand, may be compatible with this process. The steps involved in removing your name from the property’s mortgage and adding someone else’s can be achieved via Transfer of Equity.

The term “Transfer of Equity” refers to the act of legally adding names to - or removing them from - a property’s title deed on the Land Registry. Any action of this kind must be approved by the mortgage lender. You may be required to remortgage as part of this transfer, but not always.

Before your chosen family member can take on the mortgage repayments for your property, the lender will need to run a background check to ensure that this new individual has the financial means to do so.

These checks will most likely be the same as the ones you underwent when first applying for the loan.

In order to begin this process, it is likely that you will need to be up-to-date with your mortgage payments.

It is unlikely that you will be permitted to arrange an Equity Transfer if you are currently in arrears, so this approach may not be the answer for you if you are trying to move from homeownership to renting in order to clear your debts.

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2. Assisted Voluntary Sale

If you wish to terminate your homeownership because of pressing financial struggles, you might consider an Assisted Voluntary Sale (AVS). This method could prove particularly helpful if your property is facing repossession due to non-payment of your mortgage.

You can arrange AVS through your lender, though not all providers offer this option - so it’s important to check. Those who do provide AVS will likely allow the owner to remain in the property for an amount of time that is deemed suitable to arrange a sale.

This helps the owner to avoid repossession and reduces the pressure on them to force through a rushed and potentially disadvantageous transaction.

In some cases, a mortgage lender may even offer an AVS which includes support regarding the fees and expenses that come with selling property. This can afford the seller a little more flexibility and breathing room.

For example, as a part of their terms, a particular provider may agree to a reduction in the homeowner’s monthly mortgage payments between the date they agree to an AVS and the date they are able to sell their home.

An Assisted Voluntary Sale is almost always a better option than handing over your keys and directly surrendering your property to the mortgage lender.

This is chiefly because it will give you more time to get everything in order - and will usually enable you to remain in charge of your sale from start to finish.

As a result, you may be able to achieve a better price than you might have if the lender had taken charge.

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3. Fast Sale Companies

If you are concerned that your property will be repossessed because you are struggling to get out of mortgage arrears, or if you are finding it difficult to sell your home within the required timescale, a quick house sale company may be the answer.

Known by a range of other names, including “cash home buying companies”, “we buy any house companies”, and “sell house fast firms”, organisations of this kind usually buy property directly from the owner for a cash sum - usually between 75% and 85% of the home’s market value.

A major benefit of this approach is speed. Sellers do not need to wait for buyers to express interest and the transaction will not be part of a chain.

As a result, some companies of this kind take as few as 7 - 21 days to complete. This means that mortgage debt will not have the opportunity to build up much further as the result of delays to the sale.

Because you won’t be selling on the open market, the chances of your transaction falling through are significantly reduced.

In addition, many companies offering a service of this kind do not charge agency fees up front, and most cover all solicitor expenses on the behalf of the seller.

Whatever the condition of your house, you’ll be able to find a fast home buying company that is willing to take it off your hands - which means you won’t have to renovate or redecorate in order to get the property into a “saleable” state.

Of course, this does mean selling your property and walking away from it, so you’ll need to find somewhere new to live.

What to Do Next

If you wish to sell your property and begin renting instead, it’s important to make sure that you select the option that best suits your individual situation.

To help you determine the best course of action, it is a good idea to first seek independent financial advice.

You can request help from the debt charity StepChange - formerly the Consumer Credit Counselling Service - or via the Citizens Advice Bureau. A solicitor specialising in property law can advise you on what to do if you have been defrauded by a Sale and Rent Back scheme.

If you are interested in selling your home within 7 - 21 days for cash, all you need to do is to make contact with our team of experts.

We will complete a free ‘desktop valuation’ of your property and make you a no obligation cash offer immediately.

To learn more about our services or to find out how we can sell your property fast, get in touch with us today.

Conclusion

Ultimately, the decision to enter into a Sale and Rent Back agreement should be made with a complete understanding of the benefits, risks, and your long-term financial goals.

For me, the key to making the most of a Sale and Rent Back arrangement lies in being informed and prepared. This option can provide significant financial relief and stability, but only if entered into with full awareness of its implications.

That’s why I’d recommend that you take your time to assess all aspects of the agreement, seek professional guidance, and ensure that your rights and interests are well-protected.

As I always say, however you sell your property has got to be your choice and you should never feel pressured into selling. No-one will mind you taking some time to think through things before you make a decision.

Further reading

For more information and guidance on Sale and Rent Back schemes in the UK, as well as general debt advice, the following resources can be very helpful in giving you an understanding of the intricacies of sale and rent back, provide legal and financial advice, and guide you through the process safely and effectively.

FAQs

1. What is a Sale and Rent Back arrangement?
   

   Sale and Rent Back is an arrangement where a homeowner sells their property to a third party and then rents it back under a lease agreement. This allows the homeowner to access the equity tied up in their home while continuing to live there as a tenant.

2. What are the potential risks of a Sale and Rent Back agreement?
   

   Risks include receiving a significant below-market value for the property, bad tenancy agreements, potential eviction, and unexpected rent increases. It's really important to ensure all terms are transparent and legally binding to reduce these risks.

3. Are there any costs involved in a Sale and Rent Back agreement?
   

   Yes, potential costs include legal fees, valuation fees, early mortgage repayment charges, admin fees, and possibly taxes.