Most will know the basic premise – homeowners who were financially struggling were offered a discounted price to sell their property – and were sometimes then allowed to remain in situ as a tenant, paying rent. The property was often then sold on to ‘investors’. Frequently the investors subsequently turfed their tenants out to realise their investment.
My personal view was and is that this is taking advantage of people who are already in dire circumstances and therefore morally questionable- however at the time there was certainly no law or regulation which forbade such schemes.
Returning to my example, to add further insult to the embattled occupants, unbeknownst to the residential surveyors appointed to give the scheme some credibility, their opinions of value were routinely under-reported by the company as a fraudulent method of obtaining an even greater discount from the occupant or to justify the charging of a massive up front ‘application fee’. In February this year, the FSA published a report which concluded that ‘most sale and rent back transactions were either unaffordable or unsuitable and never should have been sold.’
This should have effectively shut the market down and perhaps it did- but if so, I am baffled by the proliferation of sites offering SRB’s close cousin scheme – the Below Market Value investment (BMV).
Googling ‘BMV property’ brings up 42,000 results. These sites typically offer investors the chance to purchase property at up to a 30% discount. So either lots of people are still being ‘encouraged’ out of their property on disadvantageous terms, or the investors are being misled as to the real current value of the property. If you consider an area where BMV is a significant component of the market, then if BMV transactions are the only ones occurring, they set the valuation tone and that 30% discount quickly evaporates, if it ever existed.
Today, many surveyors understandably stay well clear of these types of transactions and lenders are equally nervous – they are targeted to provide funds to purchase BMV property and are the party who have much to lose. There are still plenty of individuals out there who claim to be able to get around lender rules as part of BMV transactions. Surveyors, solicitors and mortgage intermediaries are therefore an essential part of a lender’s defence against this type of concerning transaction.
PS What happened to the upstanding firm in my example, I hear you say? Reader, they still trade today, naturally no longer offering Sale & Rent Back, but sourcing BMV properties for interested parties.
Richard Sexton || Director, Business Development
e.surv Chartered Surveyors