Is Sell and Rent Back The Right Option For Me

When Sell and Rent Back is not an option

One of the questions we get asked most is ‘Is Sell and Rent Back and Option For Me’?

bigkeyrepossession.jpg
The answer really depends on a number of circumstances and every situation is different, but generally speaking sell and rent back options are not feasible for those whose properties are worth £300,000 or more.

We have seen a massive rise in those seeking help to stop repossession whose properties are valued at over £300k.

For sell and rent back options to work, the buyer must be able to charge a rent that covers the cost of financing their mortgage.

With interest rates currently at around 6% for Buy to Let mortgages, this means that for every £100,000 that the buyer needs to mortgage, he or she must pay £600 pcm in mortgage interest. For a property over £200,000 this already equates to a rental figure of over £1200pcm.

Even if you might be prepared to pay £1200pcm now (and it may seem attractive if you are currently paying a lot more in servicing your debts), but the problem is that market rents in most areas of the UK are nothing like that amount. The average UK 3 bed semi may be worth £200k on the open market, but rental averages are probably more like £650 pcm.

This means that market rents are out of sync with property values. No investor can afford to buy a property and rent it back to the previous owner unless the rent covers the cost of their buy to let mortgage. No lender will lend against a property for a buy to let mortgage unless it believes the rent will cover the cost of the buyer’s interest payments comfortably.

For most lenders this means 125% coverage. For example is the interest was £1000pcm, the market rent must be at least £1250pcm otherwise they will not lend against the property.

For those who are facing financial difficulties with properties over £300k the obvious option is to sell on the open market and realise the best price.

Sometimes it might be possible to enter into a sell and rent back option providing the seller has enough equity in the property to allow a sale at a much lower figure, with an option to buy it back at a discount at a later stage.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: