Facing repossession? Avoid this harsh lesson!

Money website Fool.co.uk is calling for stronger regulation of sell and rent back property schemes after discovering 20% of homeowners are worried they will not be able to pay their mortgages over the next year. A further 50% would consider one of these schemes should they face repossession.

Sell and rent back schemes offer to buy a property and rent it back to its owners as a fast fix for those who are facing repossession or are facing financial difficulties. However, many of these schemes do not spell out exactly what customers can expect.

Mixed signals

Most people (89%) have heard of sell and rent back schemes (or sale and lease back schemes as they are also known). Yet, there are mixed views on what these schemes actually entail.

26% believe they can stay in the property as long as they like
One in six (15%) believe they are entitled to the full market value of their property
41% believe they have full tenancy rights
11% would still consider these schemes even if they did not pay the full value and could be turfed out within a year
Half (50%) would consider one of these schemes if they were facing repossession
Profits for the lease holder

There are many myths behind these schemes. The most concerning is that over a quarter (26%) believe that they can stay in their property for as long as they like. This is not true. The lease back to the customer is usually on an Assured Shorthold Tenancy (AST), many of which last for just six to 12 months, meaning there is nothing to stop the company from evicting the tenant from the property after this period.

Another myth is customers are entitled to the full market value for their property; one in six people (15%) believe this to be the case. However, the purchase of a property is usually at a vastly discounted rate with customers typically losing out on 15% to 20% of the market value of their property. Worryingly, 11% would still consider these schemes even if they did not pay the full value and could turf them out within a year.

Donna Werbner, Property Expert at Fool.co.uk says: "The allure of such schemes to people facing repossession is understandable. However, I would urge anyone considering doing this to do their research. Much of the information out there is misleading and by the time you find out the truth, it could well be too late to change your mind.

What is particularly shameful about these schemes is that they are targeted at homeowners facing repossession - so people who are at their most financially vulnerable.

"That's why Fool.co.uk is calling for regulation of these schemes. Vulnerable homeowners need to be protected by legislation, which enables them to make an informed decision and understand the risks involved, just the way they would with a mortgage or an equity release scheme."