Eliminating the risk of the Guaranteed Sale scheme

Guaranteed Sale schemes are very good, and have been for years, at allowing an employee to dispose of his or her home quickly, efficiently, and at market value, in order to enable them to take up their new role and focus on the tasks required of them. The only trouble with these schemes is that they are fraught with risk. Despite controls put in place to minimise the risk to the client, there are a number factors beyond our control that always bring an element of risk in varying degrees. What if the property doesn't sell? What if the guttering comes loose? What if squatters take up residence? What if the property is fraudulently let out? I've seen all of these happen and they have caused problems - some not so great, some costly and very time-consuming.

Our Outright Purchase programme has been designed to provide an alternative to traditional Guaranteed Sale schemes but at a fixed cost, removing such costly uncertainties.

Under a traditional scheme, you would never know for how long the property would be on the market, and thus how much the scheme would actually cost the company. There are a number of individual costs* to take into account when operating a Guaranteed Sale scheme:

  • Relocation company management fee
  • Valuation fees
  • EPC cost
  • Stamp duty (Scotland only)
  • Land registry fee
  • Bridging finance
  • Buildings insurance
  • Council tax and utility charges
  • Regular gardening
  • Maintenance, repairs and cleaning
  • Legal fees (sale into the scheme, purchase into the scheme and sale out of the scheme)
  • Estate agency fee
  • Loss on sale

* Costs relating to the employee's purchase are excluded.

As an example, consider the typical cost of operating a Guaranteed Sale scheme. For this example, the following assumptions are made:

Property value - £200,000
Insurance reinstatement value - £180,000
Time on market - 6 months
Bridging finance interest rate - 4.12% (Average Standard Variable Rate of Barclays, Halifax, Nationwide, Natwest)
Loss on sale - £5,000

The absolute minimum cost of providing this programme would cost the company £20,987. If the marketing period is extended to 9 months, the cost increases to £23,985. It should be further noted that in this example we have not included costs relating to any increase in interest rates, increased loss on sale, stamp duty in Scotland, maintenance charges (e.g. cleaning, infestation clearance), or repair costs (e.g. broken windows, fences blown over in high winds).

Offering a Guaranteed Sale scheme does involve some element of risk. The outright purchase scheme completely eliminates this risk - you know exactly how much it is going to cost from the outset, and once it has been sold, there is no further involvement with the property.

The scheme is a straightforward purchase and therefore, unlike traditional Guaranteed Sale schemes, the agreed price is released on completion (usually within three months), whether a new property is bought or not.

Benefits to the company are:

  • Known fixed costs at the outset
  • Less impact on the £8,000 tax allowance so greater scope to avoid "grossing-up"
  • Employee and family in the new area within three months
  • Simplified (and therefore reduced cost) legal process
  • No capital loss
  • No interest charges
  • No estate agent's fees
  • No ongoing maintenance / insurance/ council tax costs
  • No surveyors' costs
  • Reduced temporary accommodation costs
  • Reduced weekend travel costs

Benefits to the employee are:

  • 100% of market value on completion
  • Clean and easy to understand
  • Immediate funds (on completion) with no need to purchase in the new area
  • Greater scope to maximize use of the £8,000 tax allowance
  • Reduced weekend travel
  • Reduced family disruption and separation

Exchange of contracts with the employee to buy their existing property can take place within a month and completion within three months, thus enabling the employee and family to be in the new work location quickly and with no ongoing "old area" costs or responsibilities for either the company or the employee.

Stuart Beaty

Celsium, Birmingham, UK