Good riddance to this property scam

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

Related blog post

• John Fitzsimons writes:

  Should you use a mortgage broker?

  When you are hunting for a new mortgage, should you use a broker or go direct to the lender?

  Read this post

Initially, the FSA launched a set of interim rules, which I found utterly underwhelming, as I covered in Please stop this terrible property scam last year.

However, the FSA has now stepped it up to full regulation, and with a revised set of rules that came into force on 30th June. These rules make things an awful lot better for those borrowers who end up needing to go down the sale and rent back route.

This is good news, because there's no reason sale and rent back should be outlawed completely. After all, there is nothing inherently wrong with selling your home and then renting it out from the new owners - as long as those new owners don't sneakily, deliberately and systematically rip you off in the process.

Let’s take a look at the new rules.

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

Related how-to guide

Sell your home

If you want to obtain the best possible price when selling your home, then these ideas should help.

See the guide

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.