The Government asked the Office of Fair Trading and the FSA to investigate the sale and rentback market as a result of several reports and complaints about alleged malpractices within this market. The OFT published its report in October 2008, making three recommendations to the Government that this market should be regulated by the FSA, the Government should within its own programmes be increasing the public awareness of sale and rentback and that the Department for Work and Pensions should clarify the housing benefits available for SRB tenants.
This led to the FSA and Treasury consultation papers in February 2009. Responses are due by May 1, before interim regulation starting at an estimated date of July 2009.
The OFT’s report issued in October last year confirmed the high risk of tenant detriment which has resulted in strict new regulations and enhanced protection for those who have sold their property to a SRB provider. Sellers are most likely to be borrowers who, probably through no fault of their own, have found themselves facing the possibility of eviction by their mortgage lender, but who desperately want to stay in their home, perhaps for family or other personal reasons such as children’s schooling.
The regulations cover advising on entering into SRB agreements, arranging them and administering them. The focus of attention has been on the OFT report and the negative impact on tenants involved in alleged abuses but is there an opportunity to have an impact on a much wider market that is being missed?
It has been reported that the majority of potential players in the regulated SRB market place will be individuals who in the past have relied upon buy-to-let mortgage funding to operate their commercial business activities in this field. There are likely to be a very small number of sizable firms whose businesses are dedicated to the SRB market supported by adequate funding.
Is a great opportunity being missed here to add value to struggling borrowers and lenders and the mortgage market?
There are some major individuals and firms entering the market, the individuals being big-hitters well known in the mortgage industry, so the knowledge of the arrears and repossessions arena will be very well known to them. With major international backing, they could lead the SRB market professionally and to the benefit of many consumers. I hear major announcements will be made shortly.
The potential seller in the SRB market is most likely to be someone with serious mortgage arrears perhaps getting to a point of repossession or bankruptcy. The lenders would presumably prefer not to repossess or have their borrower become bankrupt.
Almost as a white knight, an SRB provider arrives with a realistic proposition to buy the property, enabling the borrower to pay off the mortgage and perhaps other debtors and carry on living in the property paying rent, ideally with a lengthy arrangement to remain in the property.
This may sound simplistic but there is a great opportunity, subject to acceptable funding for providers, for lenders to remove underperforming debt from their books. Even if it might mean doing so at a small loss, it would potentially make more funds available to the mortgage market – a win-win situation.
Bill Warren is head of Bill Warren Compliance