by Mark Johnston
Home owners with mortgage repayment problems often opt to sell their properties on a sell and rent back basis, thus allowing them to offload their mortgage and arrears whilst remaining in their home as a tenant.
However many consumers have entered in to these agreements with out being fully informed regarding their drawbacks or alternative options.
The internet has allowed these companies to set up with very little cost or knowledge, any one can set a website up, they can now reach a much wider audience and look much more professional than before when they used classified adverts in newspapers.
Sale and rent back and quick sale company’s deal with those needing to settle debts, swiftly relocate, avoid repossession or have below par homes. All these scenarios help these companies negotiate with the sellers to drive the house price down further.
These companies simply target the financially vulnerable to gain properties for less than they are worth, if they were not doing this the deal would be pointless for them.
Some sale and rent back companies use high pressure sales pitches and therefore pressurise some home owners in to making a quick sale even when it is not in their best interest.
Sale and rent back companies pay for all fees and costs and therefore valuations are conducted by their own surveyors who will simply state the market value, what the house could sell for tomorrow, a 15% to 25% reduction on this then pushes the value down even further.
As these services are unregulated they offer little if any security in terms of tenancy, a home owner could find themselves evicted at the end of a 6 or 12 month assured shorthold tenancy, after selling their home for a bargain price.
Lesley Titcomb, the financial service authority (FSA) director for mortgages has stated: “with cases of vulnerable home owners evicted from their homes after 6 to 12 months after selling to unscrupulous sale and rent back companies, tighter controls were vital”.
The financial service authority (FSA) announced a range of measures to tighten controls of the sell and rent back sector.
These standards were aimed at better protecting home owners choosing to down this route, thus making the process fairer for consumers.
The financial watchdog decided that companies in the sale and rent back sector would now need to be authorised by the financial service authority (FSA), therefore adhering to their regulations.
These companies will be banned from using high pressure sales pitches, cold calling and letter box leaflets. They should now provide consumers with clear and accurate information on the whole process and all the risks involved and an automatic 14 day cooling off period needs to be applied.
These companies must also avoid using misleading wording such as ‘fast sale’, ‘mortgage rescue’ and ‘cash quickly’ within their advertising and marketing.
Finally any home owners that do enter in to agreements with these companies must now be given the security of tenure for at least 5 years.
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