Mortgage Lenders Can Stop You Entering the Sell to Rent Back Market

Posted by admin on September 30, 2009 under Sell and Rent Back | Be the First to Comment

Anyone concerned about the legitimacy of sell to rent back schemes should take a moment to reflect on the activities of some conventional mortgage lenders. For example some people who have borrowed from reputable banks are now in a situation that they are unable to even consider the sell to rent back option.

Take the case of the Bank of Scotland and Barclays Bank, mortgage lenders that gave out thousands of property loans to mainly older customers in the late 1990s. These loans were a kind of “equity release” and they have become known as the controversial Sam (shared appreciation mortgage). Basically the deal was that these homeowners could borrow money against their properties, free of interest, but then the banks would keep about 75% of any increase in the property’s value. This amount would have to be repaid, together with the original loan, when the property was either sold or the homeowner died.

According to an article by Richard Dyson in the Financial Mail in August 2009:

“Since the loans were made, most properties have soared in value and homeowners’ original debts have trebled or more, leaving the banks owning a growing share of the property.”

Dyson’s Financial Mail article sited a case history that involved Nicholas Jones, 48, who signed up for a Sam in 1998 with his mother Sheila, now in her 70s. This particular deal gives Nicholas, who suffers from ill health and so doesn’t work for a living, and his mother the right to live in the family home for the rest of their lives. The problem is that the loan will keep growing.

Anyone who believes in the sell to rent back option might argue that Nicholas would have been better off if he’d chosen that route instead. After all, as the Financial Mail report states, by August 2009 he would already have needed close to £300 000 to pay off the £44 000 he and his mother borrowed in the first place. By the time he dies, the house could be worth millions of pounds. Unless those who inherit the house can pay what’s due, presumably the bank will be able to claim the property as theirs. They are, quite simply, in the pound seats.

Now compare the sell to rent back option.

Instead of taking still more money from the bank and ending up with some type of compound interest situation, owing more and more on the never-never, you agree on a quick sale price. In other words you sell. In return you have several options, including becoming the tenant in your own home, and the opportunity to buy your home back at a pre-agreed figure later on. So you stay where you are – just like Nicholas Jones and his mum Sheila – but you aren’t going to owe millions in a few years time.

If you can get yourself back on your feet, which most people can, given enough time, then you can buy your house back again. If you can’t what will you have lost?

Taking into account the fact that you desperately needed money at the time, preferably from the sale of your house – which was probably your only decent investment – you will have kept alive the chance to keep your home. So you won’t have lost anything. If you can’t buy back your home, you’re going to have to move on at some stage. But you will have given yourself a fighting chance by going for the sell to rent back option.

There is no way that the Jones family can opt for this kind of scheme in 2009 – they’ve lost their chance. Don’t let that happen to you! Let Beese Properties advise you now on your rights and options.