If you’re struggling to pay your mortgage, you might be thinking about using a ‘sale and rent back’ scheme. This is when you sell your home to a private company and rent it back from them. These schemes are also known as ‘buy back’ or ‘sale and lease back’. 

Sale and rent back schemes can be risky. You should check what other options you have before using one.

Check if you have other options

You should get help to deal with your mortgage debts so you can try to keep your property.

If you need to sell your home, you might be better off selling it on the open market and finding somewhere else to rent. You’ll usually make more money from the sale and could use this to pay off any other debts you might owe

If you decide to use sale and rent back, make sure you understand the risks. Check the terms and conditions to see how it could affect your long-term housing and financial situation.

Risks of using sale and rent back schemes

Sale and rent back schemes can be risky because:

• you’ll usually sell your home for less than it’s worth

• you’ll be renting, which means you could get evicted

• you might have problems if you want to claim bankruptcy or get a Debt Relief Order

• you might not be able to claim some benefits afterwards

• sale and rent back firms often break the rules they’re meant to follow 

You’ll sell your home for less than it’s worth

Sale and rent back firms usually buy homes below the market rate – this means you could end up losing money. Your mortgage lender can refuse to let you sell your home if the price you’re being offered is less than what you owe on your mortgage and any secured loans you might have.

You could get evicted

When you sign up to a sale and rent back scheme, you’ll usually rent your home back on the basis of a fixed-term tenancy. When your fixed-term tenancy comes to an end, it’s very easy for your landlord to evict you – even if you’ve done nothing wrong.

You can also get evicted during your tenancy if:

• you go against any of the terms of your tenancy agreement, like missing rent payments

• your new landlord gets into financial difficulties and your home is repossessed by someone they owe money to

This means that if you use a sale and rent back scheme, you might still have to leave your home anyway. You should think about whether you’d be better off selling your home for its full value on the open market and renting somewhere else.

You might have problems claiming bankruptcy or getting a Debt Relief Order

When you use a sale and rent back scheme, it could cause problems in the future if you want to:

• apply for a Debt Relief Order to write off your debts

• apply for bankruptcy

Your Debt Relief Order application could be refused if you sold your home for less than its true value in the last 2 years. 

If you go bankrupt, the person who manages your bankruptcy is called the ‘official receiver’. If you sold your home for less than its true value in the last 5 years, the official receiver can reverse the sale. They’ll usually resell the property for its true value. The official receiver might evict you before they sell the property – or the new owner might evict you.

You might not be able to claim benefits

If the government thinks you sold your home for less than its true value, they can stop you claiming some benefits. You might not be able to claim the housing element of Universal Credit or Housing Benefit until 5 years after you sold your home.  

You might be able to claim benefits if you had to use sale and rent back – for example, if your mortgage lender was seeking possession. If the Department for Work and Pensions (DWP) or your local council refuse your benefits claim, you might be able to appeal.

Rules sale and rent back firms must follow

There are strict rules that sale and rent back firms have to follow. These are designed to give you better protection. The firms:

• aren’t allowed to post promotional leaflets through your letter box

• must check you can afford to enter into an agreement with them and how that might affect your entitlement to benefits

• must give you a fixed-term tenancy of at least 5 years

• must arrange for an independent valuation of your home if you haven’t already got one

• must give you a 14-day cooling-off period after you sign up to give you more time to decide what to do

Sale and rent back schemes are regulated by the Financial Conduct Authority (FCA). This means the FCA checks whether firms follow all the rules and makes sure they meet certain standards. The FCA has previously found many serious problems with a number of sale and rent back firms.

Sale and rent back firms must be registered on the Financial Services Register. Before you use a sale and rent back firm,