Worried about repossession?

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Sale-and-rent-back is a relatively new property transaction in which firms buy your home (usually below the market rate) and allow you to stay on as tenants.
The obvious benefit is being able to stay in your home, in an area you know, where your children go to school. While this sounds like an attractive option, some unscrupulous companies have been deliberately targeting vulnerable people – offering seemingly great deals which leave them worse off than before.

What the experts say:
• According to the financial news and advice website www.thisismoney.co.uk: ‘sale-and-rent-back companies will purchase people’s homes for less than the market value, typically 60% to 70% – although in some cases even less, generally paying all fees and costs, and then rent the property back to the original owners at market rent. The biggest drawback with this is that homeowners are selling their property for less than it is worth and will then end up paying the equivalent of the new owner’s mortgage.’
• Steven Harris, chairman of property buying company, Swift Capital said: ‘Most of the current problems stem from the reliance of the majority of investors on buy-to-let finance. These buyers could not grant tenancies for longer than 12 (and occasionally 24) months without breaching the terms of their mortgage. ‘Homeowners who sold and rented back on these terms found they had no security of tenure when the house was repossessed, the tenancy expired or the rent was increased dramatically. But it is perfectly possible to grant tenancies for up to 20 years, with guaranteed security of tenuret.’

Investigating the industry
The Office of Fair Trading (OFT) carried out a market study into sale and rent back in October 2008, after concerns about this unregulated industry were raised by Citizens Advice Bureau (CAB), Shelter and the Council of Mortgage Lenders.
According to the report: ‘Sale-and-rent-back firms often tell consumers they will be able to stay in their homes for years, but in reality the tenancy is rarely guaranteed for more than six or 12 months.’
However, the OFT’s report also said: ‘A-sale-and-rent-back transaction may be the best way forward for some individuals.’ Some companies also offer the chance for tenants to buy back their property when they are in a better financial situation.

Moving forward
The recommendation that came out of the report is that sale-and-rent-back transactions should be subject to statutory regulations, overseen by the Financial Services Authority (FSA). Companies that are found to be in breach of these regulations should be punished accordingly. The government has accepted this recommendation the new legislation is likely to be implemented later this year.
This regulation is being welcomed by David Harker, CAB chief executive, who said: ‘We have seen cases of very severe problems arising from bad practices connected to sale and rent back agreements. While they might be the right thing for some people, consumers need the sort of robust and binding safeguards that only statutory regulation is likely to provide.’
Steven Harris agrees: ‘Customers are repeatedly told that long-term Assured Shorthold Tenancies (ASTs) are not available in the current market. This is simply not true; ASTs can be granted for up to 20 years.’

Know your facts
What is important if you are thinking about sale-and-rent-back, is to do your research thoroughly and get some help from an independent expert such as CAB (www.citizensadvice.org.uk). That way you can be sure that the company you are dealing with will allow you to stay in your home for as long as was agreed, for a rent that is affordable. Some firms allow you to buy back your home when your finances improve.

What to do now?
If you think selling and renting back is for you, here’s a guide to your next steps
• 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 will need to understand how this will affect your housing and financial situation in the long-term
• Check who pays the costs of selling the property
• What type of tenancy is being offered? If it only lasts a certain period of time to start with, check if it can be renewed
• Find out how the rents are set, how often it will go up and by how much
• Find out the responsibilities and obligations of landlord and tenant
• If your financial situation improves check if you’ll be able to buy back your property

For more information go to www.adviceguide.org.uk

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