Warning: Sale and Rent back schemes

RepossessionAngels · 22 February 2008 at 2:24AM

As the investor mentioned previously, rents are kept in line with market conditions which are directly linked to how much an investor can borrow against the property. This is a long term investment and most investors aim is to hold on to the property for as long as possible without having to release any future gains. CRB checks are conducted as our application forms can be obtained relatively easily. Most buy to let mortgage lenders will only permit 6-12 month Assured Shorthold Tenancy (AST) agreements for their loans to be issued. Should the landlord default on the loan, they would not be able to recover against the property if a long-term tenancy agreement is in place.

There have been a few bad apples (due to the fact that there is no regulation) but the majority of investors who operate in the industry are above board and professional.

silvercar · 22 February 2008 at 10:18AM

Thanks for your answer but I am not completely clear, are your tenants given more than a 12 month AST?

RepossessionAngels · 22 February 2008 at 10:26AM

No, because the buy-to-let lenders we use will not allow us to issue them...

homer_j_3 · 22 February 2008 at 10:40AM

what did you mean by separate long term rental agreements then?

You have the normal 12 month AST and something different?

silvercar · 22 February 2008 at 11:04AM

"something different" wouldn't be acknowledged by the lender, so the "long term tenancy agreement" must be the 12 month AST.

Even if something else was put in place, without lender acknowledgement, it would be worthless in the event of repossession.

homer_j_3 · 22 February 2008 at 11:06AM

exactly what I was thinking Silvercar, which is worrying.

wisbech_lad · 22 February 2008 at 11:18AM

Of course you can offer more than a 6-12 month AST. Just use equity to buy the house (hey, it is still at a 25% discount!) rather than remortgage with a BTL lender.

Bingo, you can then offer whatever length of tenancy you like

RepossessionAngels · 22 February 2008 at 11:49AM

Most investors would use a letter of intent which would explain that the property will be rented back at a level in line with market conditions and for the long term (provided that the terms of the ASTs are adhered to). The FSA recently sent a questionnaire to a large number of sell and rent back investors asking the very question of how long they have housed and are planning to house their tenants. We are awaiting the results but most investors I know would want their tenants (former vendors) to stay in the property for as long as possible. This can be proved by asking sell and rent back tenants themselves.

Repo Angels also offers the vendor the choice of being able to purchase the property back at less than the future market value by means of an option agreement with a re-purchase price.

silvercar · 22 February 2008 at 11:57AM

Most investors would use a letter of intent which would explain that the property will be rented back at a level in line with market conditions and for the long term (provided that the terms of the ASTs are adhered to).

I guess that if this was worded in strong enough terms to stand up in court, it would cover the tenants for all eventualities except action by the lender. The tenant would be covered from action by the lender by the terms of the AST, giving them short term security at least.

RepossessionAngels · 22 February 2008 at 12:08PM

We are hoping that BTL lenders will adapt and provide products which are more tailored to rent-backs.

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Warning: Sale and Rent back schemes

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