What You Need To Know If You Want To Sell Your House and Still Live In It

There are different reasons why people could choose to sell a house and still live in it. If you’re facing heavy personal debts or worried about repossession as a result of mortgage arrears, you might be considering your options with your property. When selling up and moving is completely out of the question, here are some things you need to know to guide your decision to sell your house and still live in it as a tenant.

Should I Sell My House And Rent It Back?

Sale and Rent Back Schemes offer the chance to sell your home and stay in it for a set length of time. You can sell your home at a discounted price with this scheme and live there as a rent-paying tenant for a fixed term. This scheme is usually run by a private firm, which could mean a broker, a company or a private individual.

Choosing to sell and rent back your house might allow you to clear pending debts and take care of your mortgage, but it is not without its own risks. In addition to the obvious risk of losing complete ownership of your home, some of them include:

  • Your rent could increase during and/or after the agreed term of your tenancy.
  • During the fixed term, you could get evicted if you violate the rules of your tenancy agreement, like falling behind with your rental payments for instance.
  • Your property could get repossessed and you could be asked to move out if the company or individual buying your home gets into financial difficulties.
  • Giving out your home at a discounted price might affect your eligibility in terms of filing for bankruptcy or another form of insolvency.

Choosing a Scheme to Sell Your House and then Rent it Back

Sale and rent back schemes are risky at best, and should only be considered if you have no other options. If you decide to sign up to a private sale and rent back scheme, here are some of the things to look out for in the terms and conditions.

The Price Being Offered

You could end up losing money in the deal because sale and rent back firms generally purchase homes below the market rate. A better option for you could be putting your house on the open market to get sold at a fair price and look for somewhere else to rent. Also, if the offer price is less than what you owe on your mortgage, your lender can refuse to agree to a sale at that price.

Length of Stay

Private sale and rent back schemes do not guarantee your living in your home longer than the fixed time. The possibility of getting evicted exists if you fall behind with the rent payments, breach any of the tenancy agreement terms, or the new owner gets into economic hardship and the home gets repossessed. Even if you’ve done nothing wrong, the landlord can still evict you if he needs the house for other personal purposes.

Effects on Entitlement Benefits

You may lose entitlement to housing benefit if you sell your home but continue to live there as a tenant, and other means-tested benefits such as income-related employment and support allowance, and income-based jobseeker’s allowance may be affected as well.

Getting independent financial advice will guide you and ensure that you have put careful thought into how your financial and housing situation will be affected in the long term when you sign up to a sale and rent back scheme.

What is a Home Reversion Plan?

A home reversion plan offers another way to sell your house and still live in it. All or part of your home is sold in return for a cash lump sum, regular income, or both. With this plan, someone else owns your house, but you can carry on living in it without paying rent until you die or decide to move out. The terms of your lease will, however, depend on the reversion plan you choose. The size of funds you can access with a home reversion plan depends upon your age and on medical conditions.

Depending on circumstances, the buyer pays you between 30% to 60% of the market value of your home. Usually, the older you are at the start of a home reversion scheme, the higher the percentage of your home’s market value you will be paid. The cash can be invested to provide you with a source of income.

Is A Home Reversion Plan Right For Me?

Home reversion plans are best suited to older people, about 75 years or more. Just like sale and rent back schemes, they come at a high risk and can have big consequences for benefits, tax, inheritance, and long term financial planning.

To determine if you are the right age for a home reversion or if the plan is appropriate for your personal needs and circumstances, financial advice should be acquired. A home reversion may be worth considering if you want a lump sum or income, want to stay in your home, and don’t have children or family members who need to benefit from the full value of your home.

The home may no longer be yours, or you might retain part ownership. In addition, as long as you live in it, you will still have to maintain it, so money should be set aside for that. There are terms of lease which you will have to follow, and costs such as ground rent or chief rent (the annual sum payable on certain freehold properties)

If these features of home reversion plans pose a problem for you, then you might not be well suited to handling a home reversion plan.

Questions To Ask About Home Reversion Plans

If you choose to go ahead with a home reversion plan, there are important questions you need to ask your solicitor to ensure you are clear on all points before setting out. Find out:

  • How taking out a home reversion will affect your income tax position and if you would still be eligible for state or local authority benefits
  • If the home reversion scheme can be transferred if you want to move home
  • How you can achieve a regular income and the conditions of the income (whether it will fixed or varied, and the duration of payment)
  • The conditions which the home reversion plan of your choice would impose on your lifestyle for living on in the property.

Home reversion plans would cost you maintenance fees for the property, valuation fees, legal fees, and other fees. Property valuation will determine the worth of your home and how much you sell your home for. Be sure to pay for an independent valuation, rather than for a valuation suggested by the private home reversion firm. Legal advice should be sought independently as well, so pay for the services of a solicitor who will help you scrutinise the terms of the deal.

How Lifetime Mortgage Differs from Home Inversion Plans

Both lifetime mortgage and home inversion plans are types of equity release plans. Equity release is an option for homeowners who want to raise extra cash in retirement. Only people who have complete ownership of their home, and are 55 years and over are eligible for equity release. You can choose to receive a lump sum or take regular or occasional income and live in your house. More people choose lifetime mortgage equity release over home inversion plans.

Lifetime mortgage lets you borrow money against your property as a lump sum, or take an income for an agreed duration. Throughout your lifetime, you never have to make any repayments towards the mortgage. The money is paid back when the house is sold after your death, or if you move out of the house into care.

While it sounds like a great idea, lifetime mortgage is an expensive way to borrow in the long term because you will be paying compound interest, i.e. the interest keeps rolling over, and each month you have to pay interest on the interest already accrued. In addition, the younger you are, the less you can borrow. For instance, an 80 year old could borrow up to 48% of the value of their home, while a 65 year old could only borrow about 33%.

The risks involved in lifetime mortgage should be considered before making the decision to sign up. The impact of current house prices and how it may affect any inheritance you were hoping to pass on should be considered. Economists believe that over the next few years, prices will be flat or may fall sharply. If prices increase, you could build up more equity for your family to inherit. However, continuously falling prices means that your family may have no inheritance left over after all the payments have been taken into account, so you might have to get them prepared for that. Choosing the equity release route may also affect your means-tested benefits too, as your savings generally count towards your eligibility.

Published on 31st October 2017

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