Sale and rent back deals

A Breakthrough?

Before this recession is over, unemployment is forecast to exceed 3 million. Which means that if someone loses their job, they may well struggle to keep up with their mortgage payments. And unfortunately, government rescue schemes are doing little to stem the tide of rising arrears and repossessions.

So if someone finds themselves in financial difficulty and facing imminent eviction, what can be done to help? The words ‘ethical’ and ‘sale and rent back’ do not usually appear in the same sentence – until now. However, there is now a new and ethical approach to a market which has suffered from a tarnished reputation for far too long.

One company has listened to all the criticisms made about sale and rent back and has developed a solution from scratch which addresses all the issues head on.

Their solution offers:

Assured shorthold tenancy agreements for periods up to 5 years
Property and rental valuations based on two independent assessments
£500 contribution to legal fees
All clients encouraged to take independent advice
No application or administration fees to pay
Clients can buy-back their property at any time during the tenancy agreement and share in any increase in market value
Clients are never pressurised into making a decision and can change their mind at any time before the sale of their property, at no cost
They are officially regulated by the Financial Services Authority

Sale and rent back will not be right for everyone, but it does provide a valid solution for homeowners facing eviction, who have exhausted every other option.

This company believe their scheme has raised the bar for all businesses in this market sector. They aim to keep on raising the bar even higher.

http://www.therpsgroup.co.uk

The background to the market

The regulator, the FSA, set out its proposals in its consultation paper published 6 February 2009, which are designed to reduce consumer detriment in this growing area of the housing market.

Under the proposals, a two staged regulatory approach could be taken with an interim regulatory regime to be brought in from July 2009 to address the most significant problems consumers face as soon as possible. This will be followed by a full regime which is likely to be implemented in the second quarter of 2010.

Under the interim regime, sale and rent back firms will need to meet FSA threshold conditions including the requirement to be run by fit and proper people, to adhere to the principles for businesses and to meet some systems and controls and conduct of business rules.

Sale and rent back schemes involve individuals selling their home, usually at a discount, and obtaining an agreement to remain in the property for a set period - typically through an assured shorthold tenancy of six to 12 months.

However the sector was made the subject of an Office of Fair Trading (OFT) market study last year after cases emerged that some firms were imposing substantial rent increases and were evicting tenants after a short tenancy period.

The study found that some consumers enter into sale and rent back transactions when it might not be the best option for them and that some sale and rent back firms may mislead customers as to the value of their property or the security they have as tenants.

This includes telling people they will be able to stay in their home for years, when in reality the tenancy may only be guaranteed for six to 12 months.

It is also possible that tenants may lose their homes if the landlord defaults on the mortgage and some consumers may be evicted because they cannot afford the agreed rent, which suggests staying in their property may not have been sustainable in the first place.

The government accepted the OFT's main recommendation that sale and rent back should be regulated by the FSA and HM Treasury is also today publishing a consultation paper proposing to bring sale and rent back within FSA scope and setting out a definition of a regulated sale and rent back agreement.

Dan Waters, FSA director of retail policy, said the issues identified by the OFT warrant a fast response, which is why it is seeking to bring in an interim regime this summer designed to ensure fairer treatment of customers as soon as possible.

"This two-stage approach is a new departure for us, but we believe it provides the right balance between implementing regulation quickly in order to address more serious cases of detriment, while giving us time to develop and implement a full regulatory regime that is suitable for the sale and rent back market."

The consultation paper was open for responses until 1 May 2009

Article by Andrea Rozario.

Director General of SAFE HOMES INCOME PLANS - SHIP

The issue of sale and rent back has hit the headlines once again, as Britons facing the economic downturn cast about for ways to ease their financial suffering.

In October, the OFT announced their findings on the sale and rent back sector and called for regulation, a recommendation shared by Ship, regulated equity release providers and independent consumer champions.

The repeated use of the words ‘equity release’ in the advertising literature of many sale and rent back companies has lead to SHIP'S sustained interest in the activities of the sector, and SHIP has been campaigning to make sure that the unscrupulous practices of some sale and rent back agents does not reflect on the regulated equity release market.

Our two main concerns are that firstly, many websites are misleading because they fail to inform consumers up front the risks associated with entering into a sale and rent back scheme. Secondly, sale and rent back providers are making misleading comparisons with FSA regulated equity release products.

SHIP has been working hard to distinguish the two main differences between regulated equity release and sale and rent back:

• Security of tenure: all regulated equity release products give policy holders the right to live in their homes for life, and;
• No monthly rent: equity release schemes do not require regular rent payments from policyholders.

Ultimately, people need to be able to understand the risks involved in a sale and rent back transaction, something that is not always the case currently. To support this, we have issued a “do’s and don’ts checklist” for anyone considering sale and rent back, available on our website.

One point not picked upon by the OFT that we consider vital to address is the issue of whether housing benefit would be available to anyone undertaking sale and rent back: we believe that many customers are given a false sense of security that Government housing benefit will be available should they be unable to meet rent payments, but this is not guaranteed to be the case.

At the moment the sale and rent back sector is growing unchecked and aspects of it could present a real danger to consumers. It is important that this sector is forced to offer clear information, and penalised if they do not.

For this reason SHIP have sent a letter to the OFT, the Advertising Standards Authority and Trading Standards, outlining their concerns and seeking a meeting to discuss the situation. SHIP believe that the reputable companies in the sale and rent back sector will welcome these recommendations, and work with the relevant authorities to create a regulated, safe sector.

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Posted 10/07/2007

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