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Problems with selling your home - delayed completion and lease options contracts
You may be struggling to pay your mortgage, or you need to move but are having problems selling your home. Or you may want to downsize and raise money from your home. If you're in this position, you may have heard about an exchange with delayed completion or lease options contracts.
You should be careful about signing up to one of these schemes because they can be risky. It's best to see them as a last resort.
What are exchange with delayed completion and lease options?
Exchange with delayed completion means you agree a sale price for your home with a buyer. When you exchange contracts, the buyer typically pays you an agreed deposit. However unlike a normal house sale, completion of the contract is delayed for a few years.
Lease options contract means a buyer pays you an upfront amount so they have the right to buy your home in the future. The price is agreed on the value of your home now, not when the sale completes.
Under both schemes the buyer may take over paying your mortgage and make payments either directly to you or to your mortgage lender. They may also take over buildings insurance costs and agree to pay for any repairs to the property.
You usually move out and the buyer either moves in or lets your home to a tenant. However, the mortgage stays in your name until the sale completes.
It's important you know that there's no government regulation of these schemes. If you move out, you won't have much protection if things go wrong. For example, if the buyer stops making payments to your mortgage lender, you'll still be responsible for paying the mortgage. You could lose your home if you can't find the money.
What if the scheme allows you to stay in your home?
These schemes are usually known as sale and rent back schemes. They allow you to sell your home to a private firm or individual, typically at a reduced price, and continue living in your home by renting it as a tenant.
Sale and rent back schemes are regulated by the government financial watchdog, the Financial Conduct Authority (FCA). The FCA checks whether firms stick to the rules. It also means you can complain if things go wrong.
Firms offering exchange with delayed completion or lease options contracts that allow you to stay in your home may be trying to get out of following the rules on sale and rent back schemes. Or they may not know they have to follow those rules. They may also not make it clear to you that what they're actually offering is a sale and rent back scheme.
What are the risks?
There are several risks you need to think about before you sign up to one of these schemes. Remember:
- you're still responsible for your home and the mortgage even if the buyer takes over payments to the mortgage lender. If the buyer gets into financial difficulties, you'll be responsible for any debts or missed payments and you could lose your home
- you may be charged fees which may not be clear or reasonable
- you could be breaking the terms of your mortgage agreement if you don't get your lender's permission before you enter into one of these schemes
- you could be agreeing to unfair contract terms without considering what they mean for you in the long term
- if what you're being offered is actually a sale and rent back scheme and the firm or individual is not authorised by the FCA, you will not be covered by the Financial Services Compensation Scheme. You will also not be able to complain to the Financial Ombudsman Service if things go wrong.
What other options have you got?
If you're considering one of these schemes because you're struggling to pay your mortgage, look at these options first:
- ways of reducing your mortgage costs
- ways of controlling any mortgage arrears
- increasing your income and cutting your spending
- selling your home on the open market
- checking that you're getting all the welfare benefits and tax credits you're entitled to.
If you're considering one of these schemes because you need to move but are having difficulty selling your home, you could think about renting it out yourself, or using an agency to do it.
There are some important things that you need to consider before doing this.
If you're considering one of these schemes because you need to raise money from your home, it may be best to get independent financial advice about other ways to do this.
If you still want to go ahead with an exchange with delayed completion or a lease options contract, make sure you:
- understand the potential risks involved
- check if you need your lender's permission before you do anything, or you could be breaking the terms of your mortgage agreement
- be aware of any fees or charges that you have to pay and what they are for. Ask yourself if they are reasonable
- understand the details of the contract by getting independent legal advice
- if you’re staying in your home, check if the firm you're dealing with is regulated by the FCA. You can find out if a firm is regulated by checking the Financial Services Register on their website.