Good riddance to this property scam

Mortgages and Home

John Fitzsimons
Updated on 14 March 2011 | 18 Comments

This dodgy property scam has gone on too long - thankfully the authorities are finally clamping down on it!

Back in January 2008, we published an undercover report into a relatively new practice called 'sale and rent back'.

We found that dodgy firms were offering vulnerable homeowners facing repossession what seemed like a lifeline, allowing them to sell their home and then immediately rent it back.

The firms promised our undercover reporter that homeowners could stay in their homes with "total peace of mind", and implied that they would be able to rent it forever. However, buried in the small print was the fact that once the homeowner became a tenant, they were only legally entitled to rent the property for six to 12 months. And as the firm usually bought the property at a hugely discounted rate, there was a big incentive for the firms to get rid of their tenants and sell the property as soon as they could.

So, instead of clearing the debts without uprooting their family, the homeowners would sell their biggest asset at a massive discount, and end up kicked out onto the street within a year. And that was if they were lucky - some firms went bust, which meant tenants were evicted by the firm's mortgage lender in a matter of months.

Thankfully, new developments with the FSA means firms will no longer be able to mislead and con homeowners in this way, marking a victory for lovemoney.com and homeowners everywhere!

How the FSA plans to regulate the industry

Security of tenure

The biggest problem with sale and rent back up to now has been the abject lack of certainty over how long you will be able to stay in the property. Sale and Rent Back firms would promise the earth, but the small print inevitably gave them the right to boot you out as soon as they saw fit.

Thankfully the FSA has listened on this point, and ensured that any customer who goes ahead with a Sale and Rent Back deal will be guaranteed to have security of tenure of the property for an absolute minimum of five years.

This is a fantastic move. Previously the regulator only instructed providers to make clear how long such security was granted, however to ramp this up so that families know for a fact their home will remain their home for at least five years will be a weight off the shoulders of the vulnerable borrowers who tend to have to go for such deals.

Interestingly, we note that one of the biggest sale and rent back providers, National Property Buyers, has now suspended all of its sale and rent back schemes as a result of the FSA's investigation. At the time of our undercover report, the firm emphasised "you can stay in your home with total peace of mind", while offering maximum tenancy terms of just six months. Other providers, such as rentbackmyproperty.co.uk, have also had to suspend their services. Unfortunately, some are continuing to advertise their services, claiming they will pass enquiries onto FSA authorised firms with interim permission for sale and rentback schemes.

Proper information

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My biggest problem with the interim rules announced last year was that the providers were still tasked with explaining the deals to borrowers, rather than the whole process going through independent intermediaries, and the fact that this has not changed still bothers me.

However, I am a little reassured by the fact that the new rules include additions to the sales process which ensure that all of the risks of sale and rent back are clearly explained, including through the use of the FSA’s own literature on the subject. This should help to ensure that borrowers go into the deal with their eyes wide open.

What’s more, before any homeowner can go through with a sale and rent back deal, the provider will have to go through an affordability and appropriateness check (which the regulator will then monitor) to ensure that sale and rent back is right for their circumstances.

A 14-day cooling off period is also now compulsory, to allow potential customers to fully think through whether they want to go ahead, while cold-calling leaflet dropping to advertise such services have also been banned.

Ditching promotion

Finally, the FSA has reinforced measures it took in the interim regime to clampdown on the promotion of such deals. These include the outright banning of exploitative advertising and high-pressure sales techniques, in particular the use of emotive terms like ‘mortgage rescue’ and ‘fast sale’ in providers’ promotional material.

Recent question on this topic

clelly asks:
We want to let our existing home out as we have had an offer accepted on another - how do we do this?
- daywalker answered "You'll need2 mortgages. (Unless you own one of them outright). You need various other bit's..."
- clelly answered "Thank you. We are considering for a year maybe to allow market to maybe pick up. Our existing home..."
- Read more answers

This is obviously a good thing, as struggling borrowers are likely to be caught up by such terminology, seeing it as the answer to their problems when it may not be.

But before we all rush off to celebrate, a quick google search reveals there are still firms out there - such as quicksalehouses.co.uk - with websites promising that "if you chose to sell and rent back, you can remain living in your home as a tenant for as long as you like" and emphasising that they offer "a quick cash sale".

So it seems the FSA still has quite a bit of work to do to clean up this industry... In the meantime, if you want to find out more about Sale and Rent Back, be sure to check out the FSA’s consumer website, Money Made Clear, or have a read of this simple factsheet (PDF) the regulator has put together.

More: House prices are invincible | Get £300 for remortgaging!

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 4045 or email mortgages@lovemoney.com for more help.

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Comments

value-investor
07 July 2010
I would suggest that John F. and the FSA are absolutely right in principle and far off the mark in implementation. There is no doubt that a number of shady rent-back firms have been acting unthically and should be regulated and preferably closed down for the worst cases. Obviously they took advantage of distressed home-owner and failed to deliver on their promises. But the fact is that there is nothing intrinsically wrong when a home-owner sells and wants to stay in their home for some time. There is only abuse when and if the buying firm forces them to vacate despite their promises. In its regulatory zeal, the FSA has seemingly negleted to understand how rental market works. This market is largely made up of small private landlord, an over-whelming majority of which deal honestly with their tenants.  Since recently the FSA has introduced a relatively complex and expensive registration process for any rent back. In practice all but the most established will be able afford a rentback. Rent-backs are today all but unthinkable for normal landlords. Large firms and rogue operators are the most likely to find their way around the regulation. This means that home-owner who desperately want to sell but prefer to stay in their home, will have a dramatically smaller choice of buyers. Fewer buyers, lower prices for their homes - almost inevitably. That is, for those who are lucky enough to find a buyer at all. The rest may quietly wait to be repossessed out of their homes by their mortgage companies. [b]Actual fact [/b]there are about 4000 repossessions each month. How many will find buyers these days? The FSA's blanket regulation might well do these distressed owners more damage than good. A case of regulate in haste - repent at leisure?
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Abmat
07 July 2010
Frankly, these posts are just sensationalist journalism - and lazy with it. The truth of the matter is that many companies operated sale and rent back with no problems at all. Of course as with any business there are a few unscrupulous people, but to tar everyone with the same brush is as I say lazy. The trouble with these posts is that there seems to be an overwhelming belief that if you're in trouble you can just sell your house. The truth of the matter is that generally people who can't afford the mortgage have not spent any money on their house for a number of years and therefore it is very difficult to sell. The majority bury their head in the sand until very late in the day and do not have the luxury of time to get their house sold before the mortgage company take it over. If the mortgage company repossess then they will invariably sell for a low price and pile additional fees on to the mortgagee, so even if they had equity when repossessed, they will probably not get anything from the sale and will possibly still owe the mortgage company thousands. The problem with the legislation is that very few companies are now authorised to offer this and this now means the offers that people are getting are a lot lower than they used to. Yes they get a 5 year contract but having to give 25% + of their equity in return. The number of people in trouble who actually have over 25% equity to give away is miniscule and the new legislation has put quite a number of people beyond rescue. Still why bother investigating the truth when you can just call it a "scam" for sensationalism ! Is this still lovemoney.com or has it turned into "The Sun" !!
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oldhenry
07 July 2010
I a with Steve. The more hard up you are the more you need to read the documents- or seek advice. There are volunteers that do this in Money Advice Centres. Go to them and ask what to do, they will not con you. But sadly, those that need this information will not be reading this site, they will be sitting watching some rubbish on commercial TV stuffing their face with take- out pizza. Most readers of this are middle class types that just love to be smug and put the world to rights, the only difference is that some are lefties- easy to tell them, and some righties- quite easy to tell them apart too.
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