An increasing number of debt-ridden elderly homeowners are being driven into 'sale and rent' schemes by rising interest rates, according to Home & Capital.
Home & Capital says we could see a surge in these schemes - which involve selling a property to a company who then rents it back to the seller – as borrowers feel the pressure from the five interest rate rises since August 2006. With the prospect of mortgage costs climbing by up to 80 per cent as two million fixed rate deals come to an end in the next year, the Council of Mortgage Lenders forecasts that 18,000 homes will be repossessed this year (compared with 6,030 in 2004).
Nigel Hare-Scott, sales director of Home & Capital, said: “Companies offering 'sale and rent' schemes are potentially predators preying on elderly, vulnerable people. But with interest rates soaring and more pressure on finances on the way, it’s no wonder people are turning to what appears at first glance to be a quick fix option.”
'Sale and rent' schemes give very limited security of tenure and can lead to people losing their homes. The Tenancy Agreements customers enter into under the schemes will often only extend for six or 12 months and will not necessarily be renewed. Furthermore, landlords are purchasing these properties with buy-to-let mortgages and then selling them on as quickly as possible. Customers are left unaware who their landlord will be or whether their rights of occupation will be continued after the expiry of the Assured Tenancy Agreement.
Nigel Hare-Scott said: “People should be aware they face losing their homes if they sign up to a 'sale and rent' scheme. There are safer alternatives. Bona fide regulated equity release plans offer retired homeowners the chance to release cash against their homes but have complete security of tenure.”
'Sale and rent' schemes are not regulated by the FSA whereas the equity release sector is comprehensively regulated by the FSA. Members of the sector’s trade body, Safe Home Income Plans (SHIP), provide a security of tenure for life in their plans.
Nigel Hare Scott said: “'Sale and rent' may seem attractive to those weighed down by debt and mortgage repayments, but with no regulator to oversee their activities; there is now a new type of landlord trying to take advantage of customers’ circumstances. Without regulation there isn’t even a guarantee the valuation will be performed independently or fairly - so people often receive less than 80 per cent of the true market value for their home.”
