Government and lenders should support sale and rent back, argues Pete Thomson, managing director of Residential Property Solutions
When Housing Minister John Healey made the provocative comment that repossession was the best option for some people, he expressed a thought that I have no doubt many people had been thinking for some time.
Don’t misunderstand me John Healey was wrong. Repossession can never be described as a ‘best option’. The truth is that repossession can lead to marriage break-down’s, employment problems, educational instability for children and it can even be the source of health issues. Losing your home brings a sudden end to any form of stability in your life and it’s an outcome that both government and lenders should do everything possible to avoid.
So why do people such as John Healey believe repossession could possibly be a best option? I suspect that what they were really thinking is that some people are never going to be able to dig themselves out of their immediate financial problems, despite the various sources of help available. And the CML’s most recent statistics support this point, because last year 46,000 people had their homes repossessed. Which means that the various government rescue schemes and the policy of lender forbearance failed each and every one of those individuals. With no other options and nowhere else to turn, they were unceremoniously thrown out of their homes.
For them, buying into the dream of a home ownership during the heady years of the noughties, was undoubtedly a wrong move. At the time, property seemed like a guaranteed route to riches, but what they have learnt the hard way is that nothing in life is guaranteed, especially when it comes to property.
And to make matters worse, the CML is currently predicting that the number of repossessions will continue to rise this year, possibly to as high as 53,000. So are there any quick fix solutions to this problem, or do we simply have to accept it as one of the grim consequences of an economic downturn?
I don’t believe that we do have to accept repossessions as a fact of life and I find it fascinating that, in the same week that the repossession statistics were released by the CML, the FSA also announced the full regulatory regime for sale and rent back and yet nobody seems to have seen the obvious connection between the two.
Let me explain what I mean.
On 30 June this year, sale and rent back will finally come under the full regulatory control of the FSA and sit on a level playing field alongside mortgages, savings and other financial products. The FSA has, quite rightly, addressed a number of key issues designed to clean-up what has for many years been a tainted product. For example, all tenants must be offered a five-year assured shorthold tenancy agreement, which they can terminate at any time by giving just three months notice. Five years is, I’m sure you’ll agree, plenty of time for most people to get their finances and their lives back under control.
The new regulations also stamp-out bad practices such as high-pressure sales techniques and the use of ‘armchair investors’ who have, to date, remained below the FSA’s regulatory radar.
Sale and rent back is now a legitimate solution, with tenants receiving the same degree of regulatory protection as mortgagors. Agreed, sale and rent back will not be suitable for everyone, which is why the new regulations ensure that vulnerable consumers receive professional advice from qualified advisers. But for some, sale and rent back gives them the opportunity to remain in their homes for five years whilst paying an affordable rent, during which time they can sort out their finances difficulties. This surely has to be a better solution than simply throwing them on to the streets, where they become a repossession statistic and an expensive problem for a local authority housing department?
Trying to be objective, it is perhaps understandable that some people view sale and rent back with a degree of cynicism, given its tarnished reputation. But rather than harking back to what used to be, we should be embracing what could be in the future, now that the FSA has gone to considerable expense and trouble to clean-up the sale and rent back market. This is a time when government ministers and lenders should be rallying behind a product which offers a practical and immediate solution to the growing problem of repossessions.
To date the government rescue scheme has helped just 276 households since its inception. It’s hardly scratched the surface. What we need are practical solutions which will make a difference today and which have the ability to help thousands, not hundreds of struggling homeowners. Sale and rent back offers just such a solution.
So why can’t ministers and others see what is staring them in the face?
