You're watching the sun set from the huge veranda of a house on the Caribbean island of Nevis. It's a large, cool and airy home, full of old colonial furniture. There are limes, grapefruits and coconuts to pick in the garden. Beautiful, isolated beaches are just a few steps away. And the best bit? It's free. As long as you don't mind the owners taking a holiday in your home at the same time.

All you need to be a home-swapper is the internet and a rough idea of when and where you want to go on holiday. When you find someone whose dates match yours, and who wants to swap to your area, you get ready-made, often swanky accommodation with all facilities included. Cars can be thrown in and you might even get to use the owners' boat, bikes, pool or gym. Singles, couples, families and retirees can choose from properties ranging in size from a small one-bedder near the Eiffel tower to a nut farm in the Australian outback to a houseboat on the Thames.

If you're flexible, you could be jetting off to Bali, Beijing, Lithuania, the Caribbean, Costa Rica or Cairo, although most home-swappers are still European and American. Stefan Savva from the home-swapping agency Home Invite blames "cultural barri ers" for this. Europeans are more than happy to entertain at home while Asians, and particularly Chinese, rarely do. But if you're determined, the more unusual destinations are there.

The savings are massive. Two weeks in standard double room in San Francisco, plus car hire: £2,000. Large, comfortable house in central SF, wood floors, terrace, garden, near to boating/sailing/surfing, forest/woods, use of car, two bikes, quiet neighbourhood, good public transport: £0, plus flights, of course. This means more spending money or extended holidays. Retirees go for months at a time, often doing "multiple swaps", scheduling them one after the other.

But it's not just the money. Lois Sealey, owner-manager of Homebase, was surprised at the luxury of some of the houses on her books when she started in the business. "People with homes like that could afford to stay in any hotel in the world." But they don't.

"The single most important reason people home-swap is that they feel they're living as a local," says Savva. You're getting an insider's perspective.

Pauline Bowles and her husband Billy swapped their Devon home for one on the tropical island of Nevis. "When you go, you're treated as a resident.; you live as they live. We went to Nevis eight years ago. When we returned last year, people in the bars remembered us and greeted us like old friends."

Home-swapping takes you off the tourist trail. Swappers get invited round to neighbours' homes for tea, barbecues and briefings on the local area. Heather Anderson from Homelink says: "Members tell me time and again those are the memories that stay with them. It's the cultural experience they love."

Then there's the house itself. You have the character, privacy and comfort of a real home. You can spread out instead of being squashed into one room. Shirley and Julie, who swapped their Newcastle home, say: "When you have your own place, you can do what you like, when you like and how you like."

How it works

It's simple, but you need to be proactive. All searching and contacting can be done online. On many websites, you can do an initial browse to see what's on offer without even joining. Once you sign up with an agency (which can range from nothing to a fee of around £100), you can access the details of other members. Put your own details on (including an honest description of your home and area, type of family, hoped-for holiday dates, preferred destinations and a bit about your interests and occupations) and, with luck, initial requests to exchange to your home will begin to come in. Remember that these might not always be from people in places you particularly want to visit, though. It's best to search out properties that you fancy, too, and begin to contact the owners. If the dates and destinations fit, it's game on.

Of course, there are disadvantages. First, a lot of effort goes in to home-swapping. There's all the communication necessary beforehand. Swappers will phone and email each other many times before the arrangements are finalised. Remember that these people are going to be living in your house, sleeping in your bed and using your loo.

Anderson from Homelink explains: "It's not like booking a package holiday. By the time you do it, you should feel that the people are friends." This can mean a lot of time spent on people you don't even end up swapping with, but it's worth it for peace of mind. As Nevis/Devon swapper Pauline Bowles says: "If you don't get on with the person on the phone, then that's the end of it. Don't do it. I just don't want them in my home if I don't like them. You have to pick up quite a rapport with your exchange partner."

There's also an element of compromise required on dates and destination - although this can mean that you end up unexpectedly broadening your horizons.

Paula Sydney swapped her Winchester home: "We would never have normally picked Sweden for a holiday. I was convinced that the weather would be horrible, but it was excellent. And we had the use of a house in Stockholm and a summer-house down on the south-east coast - a converted railway station. The kids just loved it."

Remember that you'll need to clear out drawer and cupboard space for your guests. And once you get away, there'll be no maid service - you'll have to clean their property throughout your stay and when you leave.

No need to worry that your home or area aren't good enough. "The Marsdens live in Ramsbottom in Lancashire and have done nine swaps since becoming members," says Kath Botterill from Green Theme International. "Perhaps I shouldn't say this, but they're proof that you do not have to live in a particularly glamorous location to be a successful swapper." Most people are pleased with quite a normal house and simply want a clean base from which to explore.

You shouldn't worry about theft or deliberate trashing of property. Home-swappers and agents alike say it just doesn't happen. Rhona Morgan from Intervac explains: "Because you're taking care of their home and they've got yours, it ensures a mutual trust; it really does. They're as anxious as the person at the other end. It's in everyone's interest to make sure it goes well."

Pauline Bowles doesn't even bother to lock valuables away any more. "Everything stays there. We swapped with a £3m beach house. If they can trust me with their house, I can trust them with mine." The worst complaint people have is the difference in standards of cleanliness.

Most agencies try to help with any problems and advise that you keep written records, but in the end there is no legal recourse if things do go wrong. As Scott of Gay Hometrade says: "Home trading is strictly At Your Own Risk." If you are the kind of person who is going to worry about other people being in your home and spend your holiday having nightmares about people going through your underwear drawer, then home-swapping probably isn't for you. Sealey from Homebase says: "I had one woman call up to join who was so worried about her white carpets. She couldn't stop asking questions about whether they would be okay. I just thought, lady, if you're so fussed about the carpets, you'd better just stay home and guard them."

First timers might find it strange but, once they've done it, most home-swappers never look back. Many say they would never take a holiday any other way. Jenny Salter, who swapped from Cardiff to the German town of Ulm, says: "I can't envisage ever going on a hotel holiday again. They're all the same. When I'm remembering holidays, I think of the hotel and can't be sure where I was. I could have been in Portugal, Greece, anywhere. Home-swapping is great. Each holiday is totally unique."

Home-swap sites

The largest and longest established agencies are homelink.org and intervac.co.uk, both of which still print off three directories per year. Most others are web-based, including: homeinvite.com, gti-home-exchange.com, homebase-hols.com and holi-swaps.com. For gay and gay-friendly swappers, there's California-based gayhome trade.com, and nomadic scholars can try sabbaticalhomes.com.

To choose the right agency, check how long they've been established, how many countries they cover, the spread of age groups within their membership and how many members they have. Bear in mind that some agencies arrive at their membership total by counting up individuals rather than family groups to boost the number.

Exchanging tips

· Be honest about your house and area.

· Ask the right questions about your destination home to avoid surprises on arrival.

· Arrange which bills you want your swappers to cover before you go.

· If you're swapping cars get the appropriate insurance.

· Swap with a similar family group. There's no point swapping to a pristine house full of breakables and antiques if you have five kids.

· Many people with large homes would be happy to downsize to be in central Paris or London.

· Leave a welcome pack. Include local information such as shops and travel links, suggested trips and sights, appliance instructions, rubbish collection times, emergency, doctors and dentists, mail arrangements.

· Leave some basic food and a bottle of wine to start your visitors off.

· Speak to your home insurers. Most prefer an occupied house.

· Double check all your arrangements, including arrangements for house keys.

· Buy your tickets for travel at about the same time, and copy them to each other. If someone's bought air tickets, they're unlikely to back out.

· Look into travel insurance carefully to cover the attendant risks, like someone from either family falling ill and cancelling.

· Lock away anything valuable or sentimental in one room.

· Replace staple items such as coffee that you use.

· Reimburse for any accidents, such as broken glasses.

· Leave your and their home spotlessly tidy.

· Relax and enjoy your holiday.

Best of the net

Cheap flights

ryanair.com
The market leader and a site that epitomises everything that people love and hate about Ryanair: charmless, but cheap and effective.

skyscanner.net
The essential flight comparison tool for the budget traveller. Lost a little of its simple perfection in a recent upgrade but still the easiest way to find the cheapest tickets, saving a laborious trawl through individual sites checking fares on each date.

cheapflights.co.uk
Searches the low-cost carriers too broadly to be as useful as Skyscanner; but also does scheduled, and is particularly good on any charter flight bargains that might be going.

britishairways.co.uk
Cheap? Well, our readers voted it the surprise winner of the low-cost airline category in this year's Guardian travel awards. Good for occasional promotions and online discounts, while a clear pricing structure makes it easy to pick the date and fare that suits.

expedia.com
Worth checking for international flights. The build-your-own package can save money by adding a hotel to your flights.

· See also: easyjet.co.uk, bmibaby.com, mytravellite.com.

Car rental

hertz.co.uk
Of all the big high-street players, this is the one whose website makes life easiest for the hassled punter. Very handy search function to locate the nearest rental outlet, quick and efficient to use. £5 off online bookings.

A little pricier but a decent site with lots of info, and pictures of the cars that you might be hiring. Not to mention a tantalising 'Why not up-grade...' facility so you can throw away the the rest of your hard-earned dosh.

holidayautos.co.uk
Seems to pull in cheap prices while maintaining a fairly usable site. Not flashy and short on detail but reasonably effective, and offers more substantial discounts for online booking. Provides booking for other sites, including theguardian.com/travel.

· See also: For general motoring rac.co.uk, theaa.com
Gwyn Topham & Ros Taylor