For many home owners struggling with debts, Sale and Rent Back (or SARB as it is more commonly known) was the light at the end of the tunnel. Gaining popularity during the mid noughties, it allowed many thousands of people to overcome a financial crisis and remain living in their home by simply selling the house to an investor at a discount and then renting it back at a discounted rate.
Unfortunately though, due to a small minority of unscrupulous investors using the process as leverage to achieve huge discounts from the market value of the house and then promptly evicting the vendor/tenant some months later, in 2008 it was decided that the Financial Service Authority (FSA) and the Government, working together with major mortgage lenders would get involved and eventually the whole industry was closed.
During this time these types of transaction typically went hand in hand with quick house buying companies advertising Sell my house Fast and Rent it Back in newspapers and online, these investors would negotiate a price with the vendor, usually 25% below the market value and use a system known as same day remortgage to effectively buy the house without using any of their own money. Another system that was later outlawed.
Upon the sale the vendor would settle any outstanding debts they had and would then become a tenant in the house, normally on a 6 to 12 month term. Many of these transactions worked exceptionally well for everyone involved with the vendor clearing all of their debts and having a financial clean start whilst still being able to stay in their home and the investor gaining an investment property, with a 25% discount and a tenant that would continue to maintain and care for the house as if it were still their own property.
We have come across many situations where the investor has kept the rent well below market rates, often fixing it for 5 or more years and the tenant has in return decorated and carpeted the house the way they like. A truly win win scenario all round.
As the noughties grew to an end, reports of unscrupulous investors and quick sale companies ripping of vulnerable homeowners grew. These companies were using the stalling tactics to deepen the anxiety the vendors were felling and allowing repossession dates to creep forward before dropping their offers to just enough to allow the vendor to repay their debts. Many times the companies would find excuses to drop the offers so low, citing poor survey reports as the reason but guaranteeing a low rent for a number of years by way of compensation.
After the initial 6 month tenancy period the company would then evict the tenants and sell the house on the open market, making many tens of thousands of pounds very quickly.
All though the amount of vendors that were being scammed was very small the government decided to act and in 2008. It announced that a preliminary registration process would begin the following year and full regulation of the industry was intended by 2010. Many investors continued to purchase throughout 2009 as the preliminary regulation only concerned itself with companies offering Sale and Rent Back and not individuals, therefore it was perfectly legitimate for investors to buy these properties. Around the same time that the regulations were announced mortgage lenders began to stipulate that all properties must be sold with vacant possession making it more difficult for individual investors to buy SARB properties.
By summer of 2010 full regulation had come into effect and only 22 companies were given the full regulation approval. The regulation process was incredibly tough with strict guidelines as to how much these companies could offer and how much rent they could charge thereafter. With the guidance so strict it has been estimated that only 61 official SARB transactions have taken place since 2010. With complaints still rising and a report carried out by consumer magazine Which highlighting that among the problems had been inappropriate and unaffordable deals, failure to discuss key facts with customers, incorrect information, breaches of the FSA’s rules on financial promotions, and poor training, record keeping and levels of competence. huge questions over the practices of the companies trading the FSA took the decision to effectively shut down the entire industry in 2012.
If you would like any further help and advice about repossession, selling your house fast with a quick cash sale, please don’t hesitate to contact us.