Sell Rent Back Gains Favour for Equity Release

Until recently, apart from actually selling your house, there were few ways of releasing the equity you had accumulated in your home. Schemes were available only to people aged over 55 and these were Lifetime Mortgages and Reversion Plans.

Lifetime mortgages generally released around one third of the equity in a home in the form of a mortgage that did not require repayments to be made during the lifetime of the mortgagee. Instead the interest built up over time and was added to the lump sum on the death of the mortgagee and was repaid out of the mortgagee's estate. This money was also repayable should the mortgagee sell the house prior to dying.

Reversion Plans also released a similar percentage of equity, but in this case the house was sold to the company providing the capital, though the previous owner was permitted to remain in the house under a rent-free tenancy agreement.

Recently a new system called sell rent back has been introduced. Although this scheme received some bad press initially it has now been accepted by the FSA and is considered to be completely bone fide.

Sell and rent back has some similarities with a reversion plan. Both allow the previous owner to remain in their home after selling it, but whilst a reversion scheme involves a rent-free tenancy agreement, with a sell rent back scheme the previous owner pays a commercial rent on the property. Because of this up 75% of the equity may be released to the previous owner.

Not all sell rent back schemes are the same. In some instances the previous owner might with to be a tenant for only a short period, in which case arrangements will be made for a short term tenancy agreement. In other cases a long term tenancy agreement might be required. All these factors are taken into account when the agreement is drawn up and the total package is calculated.

Due to the new FSA rules, anybody considering buy rent back can now be assured that their treatment will be fair as proscribed by law.

Recently a new system called sell rent back has been introduced. Although this scheme received some bad press initially it has now been accepted by the FSA and is considered to be completely bone fide.