News Review: Sale and Rent Back


Unsurprising record rise in the cost of renting


by Daniel Lowerson, partner, DFB Housing Solutions


is Britain is becoming a nation of renters? LSL Property Services recently revealed that rents have been creeping upwards - month in, month out - for the last year, and now stand just a few pounds shy of on average £700 per month. LSL blames constrained


mortgage finance for choking off the number of first-timers able to get on the ladder who then have to remain renting, often into their 30s. rightmove also recently found that rental agents were turning many prospective tenants away; only those with the best references were able to get to view its limited new stock on offer.


Available stock the upwards price pressure on rents is highlighted by the fact that the stock of available rental properties advertised on the rightmove website is 23% down year- on-year. “the momentum for


further rises continues, even though some agents are reporting increases of 5% to 10% in the last year already,” rightmove said. “those would-be buyers who have been trapped in rented accommodation because they would like to buy but cannot afford the deposits required or pass the stringent mortgage criteria remain renting, with


some 55% stating they are frustrated at their situation.” this is unsurprising


when the cost of borrowing remains at record low levels, meaning many of those paying rents would actually save hundreds of pounds every month with a mortgage especially in this country where property taxes such as council tax are paid by the tenant rather than the property owner. the lack of buy-to-


let mortgages available to landlords is also constraining the amount of property available for those needing to or wishing to rent. many landlords wish to take advantage of the falls in property prices to add to their portfolios and increase the number of property that is available but are unable to do so. there are also other concerns regarding the changes in housing benefit which is seeing more and more property being withdrawn from tenants on housing benefit. the government has also announced several caps and general cuts in the amount of housing benefit to be paid which when seen against 10% rent price inflation is a big worry for anyone relying on the state to house them.


Credit history For homeowners who have fallen behind on their mortgages or have a poor credit history it is going to be impossible to secure a choice of rented accommodation. they will often have to seek landlords who do not use letting agents and do not credit


16 mortgage introducer DECEMBER 2010


check their prospective tenants. these families will be vulnerable to sharp practices by landlords who know they have very l ittle choice and they will often find themselves in run down properties without the key protections that are in place to look after tenants. For homeowners in this


situation sale and rent back can be an attractive option as by selling their home to a regulated sale and rent back supplier they can clear their mortgage and often pay off other debts. they are then granted a mandatory five years tenancy agreement, setting out the rental payments over that time frame. they also get to remain in their family home which is then maintained by the landlord. For homeowners who are


struggling to pay a mortgage which may only cost 2% now must think carefully about what they do to secure their families housing needs in the coming years. if they have no mortgage arrears and a good clean credit then now is the time to act because when rates increase, and they inevitably will do, then they are going to lose that clean credit history and find that they do not have the choice of where they would like to rent. Sure, they could sell their


property on the open market and achieve a slightly higher price but any suitable rental accommodation they choose will only come with a six month tenancy agreement, offering little in the way of stability.


When we set our rents


they are based upon a set formula and not necessarily as high as the market rent for the area. this is especially noticeable in many of our major cities. For example, a three bed semi which was valued at £120,000 in Stevenage had a market rent of £700pcm. We purchased the property for £88,000 but we only charged a rent of just £450pcm on a five year aSt.


Knowing your landlord A recent test case was brought by nine families from the North East. They attempted to stop a mortgage company taking possession of their rented homes after their landlord was alleged to have defaulted on the mortgages secured on the properties, leaving the families at risk of being evicted. However, after a three day


hearing, the high court ruled that whatever right the families had been promised as part of the equity release scheme, they could not take priority over the mortgages which bind them. The tenants’ legal team,


headed by Jonathan Small QC, told the court “that the whole scheme was a fraud on a vulnerable section of society”. This highlights the


importance of ensuring that the landlord that you rent your property from is reputable and has had to demonstrate a level of financial soundness. Something all regulated sale and rent back providers have had to do.


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