Thinking of switching from mortgage to rent
to avoid financial difficulties? Whether it's
beneficial for you to come off the property ladder largely depends on
your personal circumstances and what you're trying to achieve in the
short and longer term.
It's always been clear to us that some
homeowners are not aware of the options open to them and don't take the
first steps to seeking out independent advice. This is a must-do.
We've included information about
switching from mortgage to rent to avoid financial difficulties for
anyone whose circumstances mean they're struggling with
keeping up with payments, have a mortgage to pay off, or whose property
is at risk from attenuating circumstances.
Getting independent advice
If you're unclear what your options are
or don't know how to deal with your lenders then CAB and Shelter, two
independent charities are good places to start. Both offer "no cost"
advice. Chances are switching from mortgage to rent to avoid financial
difficulties are not your only options. But may not know until you ask.
Until you know exactly what
choices are open to you we'd suggest you stay clear of any organisation
who can potentially gain from your situation. This includes financial
advisers and property companies.
Both CAB and Shelter will be able to
advise if you also need to get legal advice. The vast majority of people
facing arrears, for example, don't necessarily know how best to handle
their lender nor are they aware of the steps they should take if their
lender starts repossession proceedings.
For example, some of our clients have
approached us after speaking to a local CAB office. Because they'd gone
to CAB in the first instance, they were more certain of their options
and the risks involved with each...A man who found
himself unable to work following a horrific motorbike accident. The
elderly lady facing a late in life separation but left to deal with a
joint mortgage on her own..
This should put to rest the view that
people switching from mortgage to rent to avoid financial difficulties
have somehow brought their current situation on themselves.
Who should consider moving
from mortgage to rent?
Selling to rent is suitable for
anyone who makes an informed
decision that it's in their interest to do so.
Unfortunately not everyone seeks out
independent advice at the earliest opportunity. At its worst, the repossession process passes them
by, they don't get legal advice and consequently end up with the
prospect of eviction staring them straight in the face.
However these are extreme cases.
Switching from a mortgage to rent to
avoid financial difficulties, doesn't have to mean you're trying to deal
with arrears. On the contrary, people contemplating switching from
mortgage to rent to avoid further problems down the line may be wondering what
the options are for paying off their interest only mortgage.
Other people are paying out
on a mortgage and secured loans. What can some times tip people "over
the edge" is either a loss of income or their mortgage coming off a
fixed rate. This group of people can do well by re-fixing their
mortgage, selling up and renting on the open market or possibly seeking a
sell and rent back solution.
But even these examples over-simplify
the reality of many people's lives. Over the years we've learned that
there are a hundred and one reasons why people consider switching from
mortgage to rent to avoid financial difficulties.
Other things to bear in mind include
the availability of suitable mortgage products now that lenders have
tightened up their criteria and the availability of reasonably priced
property for rent in the immediate vicinity. There are pluses and
minuses with all these choices and only you can decide what is best.
Switching from mortgage to
rent to avoid financial difficulties further down the line
If selling to rent appears suitable for
you there are basically two different options. There are good commercial landlords and
ethical sell and rent back companies to choose from. If you decide renting is
probably your best course of action your situation will dictate which
route is best for you.
Uppermost on your list of criteria are
likely to be an affordable rent and security of tenure. Bear in mind
switching from mortgage to rent to avoid financial difficulties may
result in renting bringing difficulties of its own!
The main difference between renting back
your home and renting on the open market is that renting from a
commercial landlord leaves you free to sell your current home on the
open market for best price. This may be a better solution if you have no
fixed ties to the area and have time to wait for a buyer. Switching from
mortgage to rent by selling on the open market will net you the most
proceeds from the sale of your house.
On the other hand a commercial landlord
may charge you a higher rent and you may find yourself having to move
frequently. And of course you'd have to give up your home.
The major downside of
the sell and rent back solution is that you will not get the full market
value of your home, but you will be able to stay long term if you find a
reputable company specialising in long term agreements. A sell and rent
back provider may also be able to provide a range of different price and
rent combinations for you to consider, some of which may be pegged below
the market rent for your property.
In either case Shelter or CAB can advise you of
what your rights are as a tenant and what questions to ask to make sure
any rental or rent back agreement is what you think it is. You'll find
their contact details in our directory. Switching from mortgage to rent
to avoid financial difficulties is a big decision. Make it an informed