OFT calls time on unregulated sale and lease back

October 15, 2008 | posted by Pam Atherton in House prices, Mortgages | comments (0)

The Office of Fair Trading is calling for the regulation of sale and rent back arrangements - and not before time.

This has been a scandal in the making for over a year.  These arrangements are unregulated and hundreds of thousands of property owners are desperate to sell their homes to pay off debt, making sale and lease back an easy sale for rogue operators.

On first sight, sale and rent back can seem like the ideal solution to a property owner who is facing repossession. After all,  if you’re told that in return for selling your home at a discount, you can continue to living there by paying rent and possibly even buy it back at a later stage when your finances have recovered.

But unscrupulous operators have been exploiting vulnerable homeowners by paying only 50 per cent of  the market value of the properties they buy or hiking rents after only six months so that the occupants can’t keep up payments and the property has to be sold.

Over 1,000 firms are offering sale and rent back arrangements, with around 50,000 transaction having taken place already.  A flood of deals is likely to take place in the coming months as the number of repossessions in the UK is expected to reach 45,000 this year, according to the Council of Mortgage Lenders.

OFT chief executive, John Fingleton, says that these arrangements are often mis-sold because homeowners are not made aware of the risks and that sharp practice can lead to people losing their homes and remaining in debt.

Homeowners are sometimes led to believe that they can remain in the home indefinitely, whereas some agreements only give 6 to 12 month tenancies. In other cases, the landlord defaults on the mortgage and the property is re-possessed through no fault of the original homeowner.

The OFT is calling for regulation which would require that homeowners are given independent financial advice before selling and are made aware of the financial risks.

Defaqto banking and mortgage principal, David Black, says: “These schemes should definitely be regulated as they are potentially dangerous. People think sale and lease back is like equity release, but it isn’t. The market is completely unregulated and tenants don’t have sufficient security of tenure.”

Get a better mortgage deal by visiting Defaqto’s unique mortgage calculator tool:
http://www.defaqto.com/consumer/mortgages.aspx

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No end in sight to debt misery

May 2, 2008 | posted by Pam Atherton in Banking, House prices, Loans, Mortgages, UK economy, Uncategorized | comments (0)

New figures published today by The Insolvency Service show that in the first three months of 2008, 25,264 people fell victim to the insolvency epidemic.

9,614 IVAs and 15,651 bankruptcies were reported, with some debt counsellors predicting that individual insolvencies could reach 101,056 by the end of the year.

For these people, insolvency means they have already reached the end of the road as far as their debt problems are concerned. But there are plenty more  people about the befall the same fate.

Today alone, a further 292 people will fall victim to insolvency and 74 homes will be repossessed, according to Credit Action’s debt statistics.

The one piece of good news is that year on year, there has been a 22pc drop in IVAs in the first three months of 2008, compared to the first three months of 2007.

Graham Lund deputy managing director at Call Credit attributes this to the new IVA protocol which came into effect at the start of February, designed to reduce the mis-selling of IVAs, and put an end to unscrupulous IVA firms pursuing unsustainable deals.

Consumer debt in the UK has now reached a staggering £1.4 trillion, a figure that is increasing by £1 million every five minutes, according to Credit Action.

But the credit crunch is not the only problem facing consumers. You Gov says that the real rise in the cost of living is nearer 9 per cent, more than double the average salary increase of just 3.4 per cent, which means that 5 million consumers are spending more than they earn every month.

Small wonder, then, that so many people are getting into financial difficulties. But an IVA or a bankruptcy should be the last resort as both these routes out of financial ruin have a very serious impact on your credit record and ability to borrow in the future. In the case of bankruptcy, it could also damage your employment prospects.

If you find yourself in financial difficulty, the worst thing they can do is ignore the problem and hope it goes away. Under the banking code, banks now have a duty to help people in financial hardship and free debt advice is readily available from organisations such as the Consumer Credit Counselling Service (www.cccs.co.uk) , National Debt line (www.nationaldebtline.co.uk) and Citizen’s Advice www.citizensadvice.org.uk).

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