Sale and rent back: how it works, the rules and the risks

Sale and rent back means selling your home to a firm and then renting it from them, so you can stay living there. It’s usually offered to people struggling with mortgage payments. It can sound like the perfect solution — which is exactly why it’s tightly regulated.

How it’s regulated

Sale and rent back has been regulated since 2009 (an interim regime from July 2009 and full regulation from June 2010). Any firm offering it must be authorised by the Financial Conduct Authority. You can check a firm on the FCA’s Firm Checker, or by calling the FCA on 0800 111 6768.

FCA rules require adverts to warn that you are unlikely to get the market value of your home, and ban promotions that exploit people in financial difficulty or use phrases such as “fast sales” or “rescue”. Citizens Advice lists protections including an independent valuation and a 14-day cooling-off period.

The risks

• You’ll usually sell for less than your home is worth — the FCA requires firms to say so.
• You become a tenant. Check how long the tenancy is guaranteed for and what happens when it ends.
• Rent can rise, and falling behind on rent could mean losing the home anyway.
• If the firm sells the property or its lender repossesses it, your position may change.

A market that barely exists

After regulators reviewed the market in 2011, the FSA said in 2012 that the market had in effect closed temporarily. If someone offers you sale and rent back, check very carefully that they are authorised by the FCA for it — unauthorised schemes carry no protection.

Alternatives

1. A payment arrangement, payment holiday or term extension agreed with your lender.
2. Free debt advice to build a realistic budget.
3. Support for Mortgage Interest, if you receive certain benefits (it’s a loan secured on your home).
4. Selling on the open market and renting elsewhere, if staying isn’t affordable.
5. A direct sale, if you need certainty — with the price explained in writing.

Each area we cover has a local page on mortgage difficulties and the free help available nearby.

How a regulated scheme should work

1. The firm must be authorised by the FCA for sale and rent back — check the register before anything else.
2. The property is valued independently.
3. You’re told clearly what you’ll receive, what the rent will be and how long you can stay.
4. You have a cooling-off period before you’re committed.
5. The tenancy terms are set out in writing before the sale.

Questions to ask

• Is the firm on the FCA register for sale and rent back?
• What will you actually receive once the mortgage, fees and any arrears are paid?
• How much is the rent, how often can it rise, and by how much?
• How long is the tenancy guaranteed, and what happens when it ends?
• What happens if the firm sells the property or its lender repossesses it?
• Could you afford the rent if your circumstances changed?

Signs of an unregulated scheme

• Cold calls, leaflets or door-knocking offering to “save your home”.
• Promises to stop repossession immediately.
• Pressure to sign quickly, or to use the firm’s own solicitor.
• A firm that won’t give you its FCA reference number.

If you’re facing a possession hearing

Don’t ignore court papers. Return the defence form and go to the hearing. In England you may be able to get free legal advice on the day through the Housing Loss Prevention Advice Service. Shelter and Citizens Advice can help you prepare.

Why selling on the open market is often better

If staying in the home isn’t affordable in the long run, selling on the open market and renting somewhere else usually leaves you with more money than a sale and rent back — because you sell at market value rather than at a discount. It also avoids tying your housing to a landlord whose own finances you can’t see. A free debt adviser can help you compare what you’d be left with under each option before you decide.

If you need to sell quickly and certainty matters more than price, a straightforward direct sale is another option — you sell, move on, and aren’t dependent on the buyer as a landlord. Make sure any offer is in writing and explained.