Industry Catches & Small Print
Selling your property and renting it back can be a 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:
Beware of 'full value' offers
Be aware of clever advertising or too good to be true deals offering the full value of your property.
Having looked closely at one particular product that offers full value we uncovered that you only receive 70% of your home's value on completion, the remaining 30% (without any interest paid to you) is offered to you 10 years later and only if you move out of your home - if you decide to stay in your home, you will have to wait a further 10 years for your final full payment (20 years in total!). This makes the deal much less attractive, especially when factoring in 20 years of inflated rental charges - during our research, we were quoted £700 per month on a property valued at £550 per month - which works out at an incredible £36,000 extra in rent by the time you would qualify for your final 30 percent payment.
If you have already entered into an inflated rental contract and believe that your rent is significantly higher than the going market rent, don't worry - so long as you have an Assured Short-hold Tenancy agreement (AST), you have an additional right to refer your rent to the Rent Assessment Committee who will help to reduce your rent appropriately.
If the company does not offer an AST agreement you should take independent legal advice before signing anything.
How secure is your long-term tenancy agreement?
Probably the most important issue surrounding the sell & rent back market. As mentioned before, the entire model only works if the tenant stays in the property for as long as possible - homes without tenants have very expensive overheads so it makes no sense for a company to lose a rent paying tenant. Therefore, with the majority of companies, there is nothing to worry about. Having said this, some unscrupulous companies have been known to force eviction at the end of the tenancy agreement so it makes sense to choose a company carefully.
A simple but effective way of checking a company's business practice, is to ask them, in writing, if they have ever evicted a tenant - if the answer is yes you should make further checks as to how many and why.
The buy-to-let model is based on a long-term tenant paying rent to cover the interest on a 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-to-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.
The main threat of losing your tenancy/home is not paying your monthly rental as agreed - 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 (this process usually takes effect after 2-3 missed payments)which is pretty much the same as a mortgage eviction process.
Hidden costs
Often there is no end cost to the seller as many companies pay all your costs on completion. Generally speaking, you will be asked to make an initial payment to cover the cost of the property valuation; however, this will be refunded back to the seller 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.
Some companies only offer a small contribution towards legal and selling costs which can be problematic - the costs of the sale can quickly escalate into hundreds or thousands if there are any complications or delays.
