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The fast show

A growing number of unregulated sale and rent-back schemes promise a quick sale of a home at less than market value.

Sale and rent-back is a good example of the differ-ences between the regula-ted and unregulated world. The unregulated sales environment has no prescribed information which a consumer must receive.

The regulated world has this in place, not as a volun-tary code but as a set of legal requirements.

An important point to make on sale and rent-back is that there is nothing wrong with the concept. The issue rests with a person’s understanding of it and the pros and cons of such options.

In current market conditions, some people are struggling with higher mortgage repayments and, in some cases, fear repossession as a result of rising interest rates. Sale and rent-back schemes have emerged, claiming to offer a lifeline to overstretched consumers.

Sale and rent-back companies will typically buy a home for less than the market value – around 70 per cent to 80 per cent – paying the majority of associated fees and costs, and then rent the property back to the original owner at market rates. Homeowners can then use the cash to settle their mortgage and any debts while remaining in their own home. Some companies offer the opportunity to buy the house back at market value at a later date.

However, there are concerns about how these schemes are promoted and whether a client’s perception of what they are getting is in line with the reality.

The concerns include:

  • They are not regulated as the traditional mortgage and equity-release market is by the FSA, so consumers have little protection.

  • They are often promoted on the basis that they offer a quick sale but a commitment of this size should be carefully thought through.

  • They are being promoted by some as a means of equity release, which will confuse consumers, yet the method of these schemes differ hugely from regulated lifetime mortgage and home-reversion products.

  • Many schemes do not offer long-term rental agreements and many people will be unfamiliar with detailed rental terms and conditions.

    Signing up to sale and rent-back is a big decision requiring careful consideration and independent advice. Yet, many of the sale and rent-back companies promote themselves on their ability to deliver a speedy sale. Many company names reflect this, including www.sell-quick.co.uk and www.a-quick-sale. co.uk/rentback. Another one – www.propertyrescue. co.uk – offers a guarantee to “Buy Your Home For Cash And Exchange Within Two Days!”

    These schemes do offer the ability to raise funds, usually in excess of what may be raised from regulated equity release.

    A big decision linked to the ownership of a home should be carefully thought through, including talking to family members and an adviser should be consulted who can discuss all options.

    People who do not need such a quick fix need to compare all their options.

    This is where we believe the market is failing consumers most. A quick glance at the websites of many of these sale and rent-back schemes will indicate they are clearly aiming at those who are vulnerable – on the brink of repossession or with unmanageable debts.

    It is also important that people realise that sale and rent-back is not equity release in the same way as the regulated market.

    There are many differences but the key one is that sale and rent-back provides very little protection to consumers whereas the equity-release industry provides complete protection.

    Perception can be everything in the marketplace and the perception of sale and rent-back will not be helping providers of equity-release schemes who are trying to do right by their clients.

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