FSA move to close market will prompt rise in repossessions

Repossessions may rise as a result of the Financial Services Authority’s move to close the sale and rent back market as borrowers will no longer have a “last resort” lending option, according to mortgage market experts.

On 3 February, the Financial Services Authority announced that its had “temporarily shut” the SRB market, following a review that showed most most SRB transactions were either unaffordable or unsuitable and should never have been sold.

Ray Boulger, senior technician at broker John Charcol, said that there were many examples of poor practice in the SRB market, adding that it was “not a major surprise” that the market has shut.

Mr Boulger cited a recent court case in which an operator was buying up properties in the north-west on a SRB basis but was not paying any of the mortgages.

Mr Boulger said: “In the court case, the tenants were trying to avoid the properties being repossessed, telling that judge that they could pay the mortgage through the rent. The court found against them and the properties would have to be sold.

“There have been other tales where landlords have tried various means to get tenants out.”

However, Mr Boulger said that this kind of arrangement was a “last resort” for some people and that in the short-term there may be a slight increase in repossessions.

Mr Boulger said: “They will now have a problem as will have no last resort. In the short-term this may mean that we will see more repossessions. It will have some impact on the repossession level but it won’t be massive.”

According to Victor Jannels, group executive chairman at All Types of Mortgage, the sale and rent back market was “doomed” from the outset, largely due to what he termed as providers’ “dubious intentions”.

Mr Jannels said: “The question is was it better for those people to suffer a repossession and start all over again or to pay rent on their property so that one day they could buy it back?”

Mr Jannels pointed out that some saw an opportunity to “inherit” a large number of properties which would become “their investment portfolio over a period of time”. Mr Jannels said that the average loan to value would be 70 per cent, meaning that effectively they would have an immediate equity of 30 per cent.

He said: “Were there people who entered the market with the best intentions for their tenants or their property portfolio?

“They would guarantee the rent for a year but then after that it would rocket up to unaffordable levels so the property would have to be sold. No interest for the individual who would be homeless.

“There were others who were prepared to give the consumer the opportunity to buy back property, but how many people can save a deposit while paying market rents, which would often be more than a mortgage payment. Sale and rent back was doomed from the outset.”