Turning a Dream Home into a Nightmare

19 May 2012

Buying a property is often the single biggest purchase that anyone will ever make, but transforming it into a home is one of the most important tasks - creating a safe and secure place to live that is filled with love, happiness and cherished memories.

However, rising levels of inflation and the cost of living, along with continuing job cuts, are leaving many people facing financial problems, potentially threatening family homes, as people struggle to make repayments for loans secured against their property.

While equity release schemes may have become a well-known option for empty-nesters looking to access money tied up in their home, a new sell-and-rent back (SRB) market has emerged over recent years.

SRB schemes are designed to allow people still paying off their mortgages to settle any secured loans while remaining in their home by selling their property and then renting it back.

In principle it all sounds simple enough - in theory, someone could spend the rest of their days debt-free and still living in the home they love.

However, as always, it's not quite as easy as that and readers must take caution after the SRB market came under strong fire last week when Which? Money reported that many of the sector's companies were failing to provide adequate or responsible advice to potential customers.

Although SRB schemes may initially appear quite similar to equity release programmes there are some major differences between the two which should not be overlooked.

Equity release schemes are designed for older homeowners who want to release some of the capital already tied up in their house to provide extra funds - these are not intended to be a solution to debt problems.

Whereas, SRB plans are targeted towards those who need to clear their debts, are having problems meeting their mortgage repayments or are facing repossession but want to continue living in their home.

The scheme works by SRB companies buying properties for less than their current market value - usually around 70 or 80 per cent - and then renting the houses back to the former owners on a short hold tenancy, for a minimum of five years.

After this period the tenants may then still be required to leave the property, having lost a percentage of their home's value as part of the sale and having paid rent to remain living in the property.

Which? Money found that of the 17 advisors contacted, across nine companies, only two offered acceptable advice and seven did not even discuss if SRB was in the customer's best interests, however six still went on to provide quotes.

Any decisions which affect the security of a home should never be taken lightly and homeowners should be fully aware of all terms and conditions relating to the agreement. Anyone considering such programmes because of their financial circumstances should always seek independent financial advice to discuss their options and to ensure they make the best decision to help improve their situation.

Northumberland residents can contact DAWN Advice for free support and legal advice on a range issues, including debt, housing, employment, welfare benefits and family law, through the new advice line on 0844 4111 309.