The Mortgage Rescue Scheme: Options and Alternatives

The Mortgage Rescue Scheme is an option for homeowners who are struggling to pay their mortgages, but it is not the only option. Make sure you understand what the scheme involves and the long-term effects they will have on you and your family.

The Schemes

The Mortgage Rescue Scheme is divided into two main options: sell-to-rent and shared-ownership. The sell-to-rent alternative is for borrowers who cannot afford a reasonable mortgage payment and would qualify for homeless programs if they foreclosed on their home. The government arranges for a non-profit lender to buy the home and rent it right back to the previous owners at a price they can afford. The obvious catch is the house is no longer theirs; they are downscaled from owner to tenant. The shared-ownership is a creative solution for borrowers who cannot afford their current mortgages, but can afford lower mortgage payments. The scheme arranges for non-profit lenders to buy off part of the loan and rent that same portion back to the borrower. The borrower now has to pay part rent and part mortgage, but at a considerable discount from his previous payments.

The Mortgage Rescue Scheme should not be confused with similar sounding rent back schemes commercial lenders offer, such as sale and rent back, buy back or sale and lease back, all of which amount to the same thing.

Sale and Rent Back Schemes

These schemes are run by private commercial lenders that offer struggling homeowners the chance of keeping their home as tenants by selling their home to the lender at a reduced price. This sounds similar to the Mortgage Rescue Scheme offered by the government. However, similarities stop when you look at the fees and terms that regulate these "alternative" schemes. A report by the National Association of Citizens Advice Bureaux recommends customers to check carefully the terms offered by these lenders because they can be risky. If you are not careful you could hand over your property and still be liable to your current mortgage. The same report suggests buyers consider applying of a scheme run by social landlords approved by the government instead.

If you do choose to opt for a private sale and rent back scheme, make sure you understand your rights and the rules sale to rent schemes must follow. Another protection measure is to check if your buyer is regulated by the Financial Services Authority, the government’s financial watchdog. Avoid companies not listed on the www.fsa.gov.uk website. There is usually a reason they didn’t make the list.

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