If you are aware that your debts are a problem for you then you may well already be looking at potential solutions to try and get them sorted out. If you are a homeowner then one of the first things you probably did was to look at your property to see if you could use it to help you out. After all, you could look at extending your mortgage, taking out a secured loan on it or even selling up and starting again to raise money to pay off what you owe.
These solutions may have worked well in the past but that doesn’t mean that they will work now. The housing market was hit hard and it was hit early for many months before the UK officially went into recession. This has meant that the value of the average home has decreased sharply, leaving many of us with reduced equity values between the value of our property and its mortgage. And, for some people their debt problems are so severe that they are actually facing having their homes repossessed.
So, these solutions may not work so well on the basis that:
- Your home may be worth less than it was and may have less equity in it. This could prevent you from taking out a suitable remortgage/secured loans solution to repay your debts in full.
- If the value of your home has dipped then selling it in the hope of releasing equity with which you can pay off your debts may not work. You may even be in a negative equity situation.
- There are fewer buyer/mortgages in the sector so selling your home could actually be almost impossible right now.
This does not, however, mean that you have no solution here. There are companies out there that could offer you what is known as a sell/rent back scheme. Here, the company commits to buy your home from you for a fixed price and they then allow you to rent it back from them. Most companies will offer a quick and efficient sale, some within days of your agreeing to work with them. Once the deal is done you simply pay rent to the company instead of a mortgage payment to your current lender without having to move out of your home.
On paper this may seem like the perfect deal to cover all manner of debt related situations. After all one of the biggest fears that people have when they get into financial difficulties is losing their home. This way, you would get the chance to stay in your home but you would no longer have the burden of your mortgage and may also be able to pay off all your other debts into the bargain.
You don’t, however, need us to tell you that you need to take things here extremely carefully. Whilst this debt management route may work for some, for many others it may not work so well. The last thing you want here is to make your situation worse. So, for example, some of the pitfalls here include:
- You are unlikely to get more than 80% of the value of your property. The company needs to make a profit and one of the easiest ways to do this is to buy below market value so that when the market rises again they’ll have a faster equity source.
- If you do not sell your home for enough of a return to cover your mortgage then you could still have debt commitments even if you sell your home in this way.
- You have no rights over and above standard tenancy rights here. The company will give you a tenancy agreement for a set period of time and may offer low rental rates to start with. But, they don’t have to keep you as tenant if they don’t want to and they can raise your rents once your standard agreement is over if they do want to keep a tenant in the property rather than sell it on.
- Many companies are looking for fast returns by buying property at lower than market rates now in the knowledge that prices will rise as we come out of recession. These are not necessarily long-term investments which means that your time as a tenant may be short.
These schemes can, however, be extremely useful to a lot of people whose debts are getting to the unmanageable stage. They are, perhaps, most often used by people who feel that they are close to the threat of repossession or who are actually going through the process. The only person who can decide if you would like to look at a sell/rent back scheme is you.