Calls to regulate sale and rent back

Friday, 30 May 2008 8:14 AM

The sale and rent back sector "desperately needs regulating", according to the Homeowners Advice Centre (HAC).

Organisations in the sector have proliferated of late as the global liquidity crisis forces up interest rates on mortgage products and stretches household budgets.

However, despite the growing popularity of the sector it is unregulated and filled with risk, argues the HAC.

"Although the trend seems to have increased steeply in the last few months, I don't ever see it becoming as widespread as other equity release schemes simply because the propositions vary so widely," said HAC spokesperson Al Elliot.

"Certainly people who can no longer remortgage at competitive rates will consider this as an option; however, until it is fully regulated and providers are obliged to commit to long term tenancies, I cannot see a time where this would be preferable to re-financing, if the remortgage route was available."

Sale and rent back sees a provider offer to purchase a seller's property, usually at a reduced rate, allowing them to remain in the property as a rent paying tenant.

"There are a very small number of sellers who advertise their homes on sites such as Rightmove.co.uk with the proviso that they are offered a rent back period, but this seems to have been met with limited success," continued Mr Eliot.

"At present there is no real direct forum that advertises vendors wanting to rent back."

Despite appearances these schemes are not just for those in dire financial straights.

"Older people often see it as a fairer way to extract equity from their homes than equity release, particularly if they are fit and healthy, as equity release schemes often offer paltry sums to those they consider will live for a longer period of time," said Mr Eliot.

However, those considering entering into a sale and rent back arrangement are advised to proceed with caution.

"I estimate 95 per cent of all companies advertising on the internet and the classifieds are individual landlords or small companies looking to build a cheap buy-to-let portfolio quickly as opposed to organisations that have set out to provide long-term lets and debt relief," explained Mr Elliot.

"This area desperately needs regulating, and I suspect that most of the smaller providers would close down or stop advertising if the Office of Fair Trading (OFT) ensured that the lease was a minimum of 20-years and they had to have £1 million in equity or liquidable assets before trading."

Chris O'Toole

Tags:
• uk property news