Fatal: unable to initialise SFTP: could not connect

Solution 1:

From sshd manual:

ChrootDirectory
Specifies the pathname of a directory to chroot(2) to after 
authentication. All components of the pathname must be root-owned 
directories that are not writable by any other user or group. After the 
chroot, sshd(8) changes the working directory to the user's home directory.

Most likely your home directory is not owned by root and sshd is refusing to chroot to a non-root owned directory, as it's unsafe. Create /home/chroot, chown it to root and move your home directory under that.

To easily debug these problems and avoid locking yourself out, I recommend running a separate instance of sshd on a different port, in no-detach mode and with debug enabled:

 /usr/sbin/sshd -D -d -p 2222