How it works

This section is to help understand the sell & rent back phenomenon which has recently hit the UK streets, combating the credit crunch & offering protection of our homes and equity, now that simple loans have become very tough to obtain due to the financial climate.

Selling your property and renting it back can be a very good solution if you are aware of any small print your chosen company may include within or aside of the purchase contract - like all industries, there are good and not so good companies so read this carefully:

There is no real reason for any complicated clauses, after all we are only really talking about selling a property then renting it back with a solid tenancy agreement to give protection against being evicted, so it should be a simple process.

The Reverse Finance Company ticks all the essential boxes:

1. Your property gets valued by a Royal Institute Of Chartered Surveyor only (this guarantees a fair valuation).
2. You receive a cash offer which at least clears all your secured debts & is payable in full on completion.
3. You receive a fully renewable tenancy agreement with no added clauses.
4. Offers a buy back option - not many companies offer this due to the risk, if property prices carry on falling this would give the tenant the right to buy back the property below the price they sold it. The Reverse Finance Company do offer this option at no charge.

Are you safe to stay in your home as long as you wish? This is probably the most important issue surrounding the Sell & Rent Back market.

The Reverse Finance Company make it as simple and secure for the tenant as possible. As mentioned before, the entire model only works if the tenant stays in the property for as long as possible - homes without tenants are a very expensive overhead so it makes no sense to lose a rent paying tenant. The only way of losing your tenancy is not paying your agreed rent, if you find yourself in the situation of missing multiple rental payments, the landlord/company has the right to file a section 21 or eviction notice if the rent is not brought up to date(the process usually takes effect after 2-3 missed payment.

The cost:
There is no end cost to the seller as The Reverse Finance Company pays all your costs on completion. Generally speaking you will be asked initially to pay for the cost of the valuation, however, this will be refunded when the sale is completed. This deposit simply protects the company from people using this service as a free way of valuing their home or changing their minds after the company has accrued significant time and expense in the purchasing process. The Reverse Finance Company do offer a total cost wavier in specific circumstances.

How the industry works:
When raising the money to buy your property the purchasing company has to obtain a mortgage offer to buy your property, the value of which is dependent on the lenders assessment of the market conditions in your area & the property rentalvalue. The rental value is very important as, unlike a straight forward mortgage that is based solely on the bricks and mortar value, the lender has to know if the rental value of the property will cover the mortgage interest secured on it. This is rarely understood by the seller when the offer is made. For example, on a £200,000 property, the purchasing company, having agreed to pay all of their and your fees, will have to invest a minimum deposit of £30,000 to obtain the mortgage, plus further costs of around £5000 in fees as well as stamp duty.
Therefore, it’s not as rosy for these companies as one might think.

Other costs include 15 percent per annum of the value of the mortgage to maintain the management of the property and any unpaid rents. You also have to keep in mind that buy2let companies will have to take a fairly big risk when purchasing a property in the present climate when you consider house prices have had huge growth over the past years and are expected to decline. In the last 3 months, house prices have fallen approximately 5 percent, with most analysts predicting anything from a zero to a huge 35 percent negative crash over the next 5 - 10 years. More information can be found at www.housepricecrash.co.uk.

The Buy 2 Let model is based on a long term tenant paying rent to cover the interest on the mortgage over 5 - 10 years, by which time the house prices should have recovered to more positive territory. Historically, prices tend to recover over a ten year period. Buy 2 let companies hedge their bets and aim to keep their properties tenanted long enough in order to see property prices grow to a high once again.