Pensioners beware of sale-and-rent back
There have been a number of reports in the press about unscrupulous sale-and-rent back firms offering an alternative to equity release.
Elderly people are advised to view approaches from such firms with caution because growing numbers of sale-and-rent back companies are targeting asset-rich but cash-poor pensioners.
They offer to purchase homes at below market value and rent them back to the former owners.
However, in a large number of cases, the residence guarantee extends to between six and 12-tenancies, leaving the former homeowners at risk of eviction.
Equity release providers, which are regulated by the Financial Services Authority, have expressed concerns about the expansion of the unregulated sale-and-rent back sector.
According to Nigel Hare-Scott, of Home & Capital, many sale-and-rent back firms were operated by buy-to-let landlords who are seeking to make profit through buying property at low prices and selling it on.
By contrast, reputable equity release companies are members of Safe Home Income Plans (Ship), a body that provides a code of conduct which includes a requirement for potential customers to be advised by their own solicitor.
Whilst a sale-and-rent agreement may seem attractive to those struggling to cope financially, no regulator is in place to oversee the activities of providers.
Anyone considering equity release is faced with a number of options. These include downsizing to a smaller property, a lifetime mortgage and a home reversion plan.
With a lifetime mortgage, homeowners can borrow against the value of their property. The interest charged on the loan and the loan itself is repayable either on the sale of the property or the death of the borrower.
Home reversion plans involve selling a proportion of the value of a property, which is then reclaimed by the lender on the property’s sale or owner’s death.