Clouds are gathering over the UK housing market - and desperate sellers are increasingly turning to sell-to-rent-back companies. But homeowners should be wary of this unregulated industry.
Clouds are gathering thick and fast over the UK housing market. In the first six months of this year, repossessions rose 30% on last year, leading to a 22% quarterly rise in the number of properties sold at auction in the second quarter of this year, says the Royal Institution of Chartered Surveyors (RICS). The RICS reckons that as many as 45,000 homes could be repossessed in 2008 that compares with 76,000 at the height of the 1991 recession, but just 19,600 last year.
We've brought together our expert commentary on the state of the UK property market along with our top tips for investment property abroad in this special report - and it's FREE to MoneyWeek subscribers. To get your copy now, simply sign up for a free three-week trial of MoneyWeek.
The figures could be worse were it not for the huge growth in the sell-to-rent-back business. According to the FT, analysts think that more than 200 of these firms which offer to buy homes at discounts from desperate sellers, who then rent the property back from the firm were launched in the UK last year alone. With interest rates having risen five times in the past year, it's no surprise the sector is so buoyant. It offers an alternative to overstretched homeowners who have at least some equity in their home, letting them pay off their mortgage (and often other debts too) while avoiding the upheaval of repossession. The trouble is that the industry is not regulated. The generally quoted figure for sale prices is that companies will buy a house for between 70% and 80% of the market value. But according to a recent Citizens Advice report, one elderly man in Wolverhampton sold his property for £40,000, despite the market value being £165,000. Another potential pitfall is that many of these companies only guarantee rental contracts for six to 12 months. At the end of the agreed term, the firm may hike rental costs sharply, driving the tenant out of the house, so that they can sell it on. So the unfortunate former homeowner loses their home anyway.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sell-to-rent-back firms aren't the only ones to spy an opportunity. Clare Francis in The Sunday Times suggests that landlords have been "picking up properties at huge discounts". But as we pointed out in last week's cover story, buy-to-let is actually one of the market segments most at threat. Indeed, as the credit crunch worsens and mortgage lenders find it harder to borrow money, they are being forced to hike interest charges and pull subprime mortgage products off the market. And if repossessions keep rising, then anyone going bargain-hunting' now may find their new home becomes even cheaper further down the line. Sell-to-rent-back companies are set to do well, but the buy-to-let boom is over.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.
‘Inheritance tax insurance’ enquiries are soaring – but is it worth it?
MPs warn over Lifetime ISAs which could leave savers out of pocket
