Could sale & rentback fix the mortgage arrears hole? David Cowan investigates
Sale and rentback transactions seem on their face to be a pretty good way of solving a homeowner’s debt crisis. They get to stay in their own home and may get a capital payment. The buyer gets a capital asset and entitlement to rent (if one is to be charged). It is unclear how many such transactions have taken place but, in 2008, the Office of Fair Trading (OFT) estimated that around 53,000 such transactions had taken place (Sale and Rent Back – An OFT Market Study, OFT 1018, London: OFT).
Transactional risk
Nevertheless, there are considerable risks to the former homeowner (the seller-renter) which arise in these transactions. It is crystal clear that these transactions are not for the faint-hearted or, indeed, for many households in debt. The Financial Services Authority (FSA), which now regulates these transactions, requires firms to provide the following information to potential victims:
“Consider these schemes only as a last resort. Make sure you have looked at all other options first” [original emphasis]. For example, expectations
