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Site updated:

20 March 2010

Home and neighbourhood - In Wales

Mortgage rescue schemes

This information applies to England and Wales

What is a mortgage rescue scheme

If you're struggling to pay your mortgage, one option you may want to think about is a mortgage rescue scheme. These schemes are also known as buy back, sale and rent back or a sale and lease back scheme.

These are schemes which offer to buy your property and rent it back to you.

This may look like a good way out of your mortgage problems because it allows you to pay off your debt while being able to stay in your home.

However, you need to be very careful about signing up to a mortgage rescue scheme because, in some cases, you could end up paying very high rent or even being evicted.

A mortgage rescue scheme may be the right option for you, as long as you check the terms and conditions of the scheme very carefully. You need to understand exactly what you are signing up to, and how this will affect your housing and financial situation in the long-term.

On this page, we tell you about:

what to look out for before signing up to a mortgage rescue scheme
schemes run by private companies or individuals
schemes run by social landlords, such as a local authority or housing association
government-backed Mortgage Rescue schemes
other options you may have for dealing with your mortgage debts.

If you’re having serious difficulties paying your mortgage, for example, if you’ve started getting letters from your mortgage lender threatening court action, you should get help from an experienced debt adviser straight away.

You can get debt advice from a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.

You might also find it helpful to look at What happens if your mortgage lender takes you to court.

Things to look out for before signing up to a mortgage rescue scheme

If you're thinking about signing up to a mortgage rescue scheme, there are some things you should look out for. These include:

whether the scheme offers benefit or debt advice and if so, is it independent or monitored in any way
who pays for the costs of selling the property
what type of tenancy is being offered. If it's a tenancy which only lasts a certain period of time to start with, can it be renewed after that and when can the landlord take court action to evict you
how are the rents set, including how often will the rent go up and by how much
what are the responsibilities and obligations of both the landlord and tenant
can shares in the property be bought back if your financial position improves
are there any insurance or bond arrangements if the scheme ever runs into financial difficulties.

You should also bear in mind that if you sell your home but continue to live there and pay rent, you may not be entitled to Housing Benefit.

For more information about Housing Benefit, see Help with your rent – Housing Benefit.

If you're thinking about signing up to a mortgage rescue scheme, you should get advice from an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.

You may also want to think about getting independent financial advice. This will help to make sure you've thought carefully about how signing up to a mortgage rescue scheme will affect your financial and housing situation in the longer term.

Private mortgage rescue schemes

Most private firms refer to mortgage rescue schemes as sale and rent back schemes. The Financial Services Authority (FSA) regulates the sale of sale and rent back schemes, which means that they monitor how firms sell them, and ensure that the firms meet certain standards. It also means that you will have access to a complaints procedure if things go wrong.

You can check if a firm is regulated by contacting the FSA’s moneymadeclear helpline. Details of the helpline are available from www.moneymadeclear.fsa.gov.uk.

You should take extra care before signing up to a sale and rent back scheme run by a private company or individual because:

they often buy homes below the market rate
you will probably have an initial tenancy which runs for six or twelve months and, during that time, the landlord might charge you what seems to be a reasonable rent. However, after that, if your tenancy is renewed, you may be charged a higher rent or one which is not that different from what you would have paid if you were still paying off the mortgage and the arrears
the type of tenancy offered may give you little protection from eviction which means that the landlord might be able to evict you quite easily.

A regulated firm selling sale and rent back schemes has to treat customers fairly, making clear important information about the agreement you are thinking about entering into. Also, it must not pressurise you into making a decision. Some of the things that a regulated firm has to make you aware of include:-

the market value of your home as assessed by an independent valuer
the price the firm will pay you for your home and how that compares to its market value
the type of tenancy they will offer you and how long it will last
how much the rent will be and how it can be changed
the importance of getting independent advice.

If you are thinking about signing up to a sale and rent back scheme with a private company or individual, you should get advice from an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.

For more information about your rights as a private tenant, see Renting from a private landlord.

Mortgage rescue schemes run by social landlords

Some local authorities and housing associations also run mortgage rescue schemes, although there aren't many of them around. They often have strict rules about who can apply, so you may not qualify.

These schemes will allow you to remain in your home either as:

a tenant. Your home would be sold, usually to a social landlord, such as a housing association, and then rented back to you at a rate which is less than your mortgage repayments. The scheme may give you the right to buy back your property back if your financial situation improves. You should check whether this will be possible
a shared owner. Your home would be sold, usually to a social landlord, such as a housing association, and you would pay part rent and part mortgage. You may be able to increase your share of ownership when you can afford to. You should check whether this will be possible.

When your property is sold to a social landlord, the money is used to repay your existing mortgage and the arrears. If there is not enough money to cover all of the arrears, you will have to make other arrangements to pay off the difference.

To find out more about mortgage rescue schemes run by local authorities and housing associations, ask your local authority.

If you are thinking about signing up to a mortgage rescue scheme run by a social landlord, you should get advice from an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.

Government-backed mortgage rescue scheme in England

In England, the Government has launched a mortgage rescue scheme to help vulnerable homeowners to stay in their home. The scheme has two separate parts - a Shared Equity scheme and a Mortgage to Rent scheme.

Under the Shared Equity scheme, a housing association will give you a loan which will be used to lower your monthly mortgage repayments. You will need to repay the loan to the housing association but you will still own your home.

Under the Mortgage to Rent scheme, a housing association buys your home and allows you to carry on living there as a tenant. It means you will no longer own your home. You will have to pay rent each week or month to the housing association.

Who can apply for the scheme

To be able to get onto one of these schemes, you will need to show you are at risk of being made homeless in the near future because of repossession by your mortgage lender. You will also need to show that you need to stay in the same area where you live, and that:

you, or someone in your household is pregnant or
you have dependant children, or
you're vulnerable. This could be, for example, because of old age, mental illness or a disability.

You will not be able to apply for either of the schemes if:

the total amount of annual income in your household is more than £60,000
you have more than one home
your home is valued above a certain amount for your area.

As well as meeting these conditions, which apply to both schemes, you will also need to meet some additional conditions, depending on which scheme you apply for. These are described below.

Shared Equity scheme

To be able to get on the Shared Equity scheme, you must:

have a certain amount of equity in your property. Equity is the difference between how much your property is worth and the amount you owe on the mortgage
be able to keep up payments to your mortgage once you have been granted an equity loan.

How shared equity works

If you are considered suitable for shared equity:

a housing association will offer you a loan of between twenty-five and seventy-five per cent of your current mortgage. This will be paid to your mortgage lender
the loan will reduce your overall monthly mortgage repayments. The loan is secured against your home
you will be charged three per cent of the value of the loan for joining the scheme
you will be charged an interest fee on the loan of 1.75 per cent for the first year. The fee will increase after the first year at a certain percentage rate
you will continue to have to pay for any repairs or maintenance on your property.

The property will remain yours, as long as you are able to keep up the payments on your mortgage and on the loan. If you can't keep up your repayments, your mortgage lender will be able to take action to try and repossess your home.

Mortgage to rent scheme

How the scheme works

If you're considered suitable for the scheme:

you will no longer own your home. Instead, your home will be owned by a social landlord. This is usually a housing association. You will become a tenant of the housing association
you will have to contribute 3 per cent of the value of your home to join the scheme. If you have less than three per cent equity in your home or you're in negative equity, you may still be able to join the scheme but you may need to come to a separate arrangement with your lender
you will be given an assured shorthold tenancy. The tenancy will allow you to stay in your home for at least three years. At the end of this time, you should be given a new tenancy, as long as you've kept to the conditions of your tenancy agreement
your landlord will be responsible for any repairs to the property
you will have to pay rent and keep to the other conditions of your tenancy agreement
the rent that you will be charged is eighty per cent of the rent your home would be expected to get on the open market, if you let it out.

(Example box starts)

For example: your home was on the open market to rent and a letting agent suggested that you would be able to get £550 per month for it. Under the Mortgage to Rent scheme, the rent you would be charged is eighty per cent of this amount. You would have to pay £440 a month rent to your landlord.

(Example box ends)

For more information about social landlords, see Renting from a public sector landlord.

For more information about assured shorthold tenancies, see Renting from a private landlord.

Once you've agreed to sell your home to the housing association, you won't have an automatic right to buy the property back again, although this may be possible in some circumstances.

How to apply for a Government-backed mortgage rescue scheme

To apply to go on either the Shared Equity scheme or the Mortgage to Rent scheme, you will need to:

get a money advice agency to carry out an up-to-date assessment of your finances. This will show whether one of the schemes is an option for you
be sure that your mortgage lender has considered other options and will support your application
be sure that there is currently no legal reason why your property can't be sold
provide an up-to-date valuation of your property to show its possible selling price.

You may not be able to go ahead with the scheme if a valuation finds your property needs a lot of work done on it.

You can get more information about the Government-backed Mortgage Rescue scheme from the Department for Communities and Local Government website at: www.communities.gov.uk.

Once you've been made an offer by a housing association to go on the Mortgage Rescue scheme, they should arrange for you to get free independent financial advice.

However, you may want to get independent financial advice before an offer is made, to make sure that you are making the right financial decision. If you want to get financial advice earlier on, you will have to pay for it.

To apply to go on the Government Mortgage Rescue scheme, contact your local Citizens Advice Bureau. They will be able to advise you whether or not you qualify. To search for details of your nearest CAB, including those which can give advice by email, click on nearest CAB.

Government-backed Mortgage Rescue Schemes in Wales

In Wales, the Welsh Assembly Government has set up a mortgage rescue scheme with housing associations in Wales. You can find more information about the scheme on the Welsh Assembly Government website at: www.new.wales.gov.uk.

Further help

More information about the Government-backed Mortgage Rescue scheme

You can get information about the Government-backed Mortgage Rescue scheme from the Department for Communities and Local Government website at: www.communities.gov.uk.

More information about mortgage problems

For more information about how to deal with mortgage problems see:

On Adviceguide

How to sort out your mortgage problems
The mortgage arrears fact sheet in Credit and debt fact sheets
Your mortgage lender takes you to court – how to prepare for the court hearing
Eviction for mortgage arrears
Increasing your income
How to spend less.

On the National Homelessness Advice Service website

Go to www.nhas.org.uk

On the Financial Service Authority website

Go to www.moneymadeclear.fsa.gov.uk

Independent financial advice

If you're thinking about signing up to a mortgage rescue scheme, you should get independent financial advice. The following organisations can help you find an independent financial adviser:

Independent Financial Promotions (IFAP)

Website: www.unbiased.co.uk

Institute of Financial Planning (IFP)

Tel: 0117 945 2470
E-mail: enquiries@financialplanning.org.uk
Website: www.financialplanning.org.uk

Personal Finance Society (PFS)

E-mail: customer.serv@thepfs.org

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