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The perils of quick fixes - 15 October 2008

In times of economic turmoil, the incidences of people having trouble meeting their monthly mortgage repayments increase in line with bad news, job losses and inflationary pressure. Now, one of the schemes that is supposedly is in place to help those who find themselves short of cash has been attacked for taking advantage of the very people it is meant to be helping.

Many people in the situation of needing to release equity are attracted by the prospect of sale and rent back schemes. The companies operating sale and rent back to the public offer to buy specific properties for cash, at a rate below current market value, and allow the previous owners to remain in the property as tenants, often at a rental rate below what might be found on the open market.

The company buying the property gets a blow-market-value deal on the property, plus a tenant guaranteed for a good length of time who will no doubt look after the property well as they still think of it as their own home. One family reported to the BBC that they had been asked to leave their home after selling it to a company in Reading despite still having time left to run on their agreed lease.

The family feel they were pressured into agreeing to the sale within days, and that the company involved kept £20,000 of the sale price as a deposit, which has yet to be returned.

The warning comes at a time when more people than ever in recent years are considering ways of releasing equity in their properties in order to make sure they can either keep up repayments or find a way of selling and then renting. The sale and rent back industry is not subject to any kind of regulation, and many feel the companies involved take advantage of the poor financial situations people are left in.

Attendees of many of the property investment seminars that take place in around the country hosted by companies wanting people to sign up to attend residential courses are shown the sale and rent back model as a way of making investments in the property market instead of a traditional buy-to-let. These courses encourage investors to find ways of buying properties below market value, and then leveraging them in order to allow more property to be bought, while still producing rental income.

Therefore, it is possible that many of the landlords involved in this type of scheme are inexperienced, part-time investors who have leveraged their own property portfolios to such an extent as to be under their own pressures to maintain repayments.

Andrea Rozario works for an industry body representing regulated equity release schemes, called Safe Home Income Plans (SHIP). She told the BBC, “Whilst there may be some ethical companies out there, there is an awful lot of companies springing up that have no real idea how to portray the risks to customers.”

She said that the industry can print what they like and say what they like, and is compiling a dossier of advertising material which will be passed to Trading Standards to investigate.

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