Personal Finance News

Local and national newspapers across the UK are filled with eye-catching adverts offering you what seems like a fantastic solution to clear all your debts. Yes I'm sure you've seen the offers to buy your house from you allowing you to pay off all your debts and letting you continue to live in your current home, you just pay rent instead of your mortgage payments.

Whilst it sounds like the answer to many peoples prayers and a quick and easy way out of debt, the reality of these schemes is that they can turn into a complete nightmare and end up putting you in an even worse position. If you were considering this as a way of clearing your money worries, please STOP NOW and read the rest of this article to understand why these schemes need to be treated with extreme caution.

It's not surprising that increasing numbers of people are suffering financial hardship in the aftermath of the credit crunch and the sharp rise in the cost of energy, food and petrol we have witnessed this year. Unfortunately there are some people out there that realise this and are preying on the fears and concerns of householders who can't see any light at the end of the tunnel or a way of turning their financial situation around.

Here are three very important reasons why you should think extremely carefully before considering using sale and rent back as a means of getting out of debt.

• The price that these companies are prepared to pay you will not be the current value of your property, it will usually be somewhere around 15% to 20% less than the real market valuation.
  
  
• The company that buys your home will assure you that your home cannot be repossessed by your bank or building society. Whilst this is true, as your existing mortgage will be repaid, if the company that buys your house goes out of business, then their mortgage lender will have the power to repossess your home and evict you.
  
  
• The sale and rent back company will tell you that you can remain in the house for as long as you make the monthly rent payments. There are two potential problems here, firstly the rent you are expected to pay may end up being more than your monthly mortgage payments and can be subject to regular increases. The second and potentially more serious issue is that you will sign up to a short hold tenancy agreement which provides minimal security to the tenant as most of these agreements only last six or twelve months. Once the agreement expires, the landlord can either renew the tenancy agreement for a further short period, or worryingly the agreement may not be renewed and in such circumstances there is little to stop them evicting you, the tenant from your home.

The Office of Fair Trading is currently looking into this unregulated market to check whether existing consumer protection legislation is sufficient and effective.

John Singleton, OFT Chief Executive, said: 'Sale and rent back schemes might be helpful for some consumers but there are a number of potential concerns including whether consumers in difficult circumstances are making well informed choices. We are therefore prioritising this work to take a good look at whether consumers are adequately informed and protected.'

If you are still considering the option of a sale and rent back scheme, please seek independent advice from a local solicitor before signing any paperwork, otherwise you could find yourself jumping out of the frying pan into the fire.

In addition there may soon be other alternatives as a result of plans announced by the government yesterday. The basis of the government announcement is detailed below so if you can hold off making a decision it may be worth seeing how these government plans develop as they may prove a safer and more secure alternative to these sale and rent back schemes.

• Stamp duty is to be axed for a year on properties costing less than £175,000. The level at which the 1% purchase tax has to be paid is to be increased from £125,000, from 3rd September.
• First time buyers with a combined salary of less than £60,000 will be offered loans of up to 30% of the property value, free of charge for five years on new properties, co-funded by the government and developers.
• For existing homeowners who can no longer afford mortgage payments, the government will allow councils or social housing landlords to pay off the debt and instead charge tenants rent "at a level they can afford".
• The Government is also promising to deliver more social homes sooner.