The Fool Makes A Difference!
Thousands of you read The Fool's undercover report that warned vulnerable homeowners about a dangerous way to get out of debt. Now find out the difference it has made.
A good friend of mine recently started working as a junior doctor. The last time we met, I asked her how it was going. 'I saved someone's life yesterday!' she told me excitedly, smiling from ear to ear.
Now, sadly, I can't claim to have saved anyone's life this week. But I did get some news that made me think that maybe I too am doing a tiny bit to make the world a better place, albeit on a much smaller scale than my friend Kaira.
Last month, I highlighted the dangers of sale-and-rent-back schemes, which allow you to sell your home for 80% of its market value and then rent it back. These schemes target vulnerable homeowners facing repossession by promising them that they 'rent it back for as long as they need to' and 'maintain stability' in their lives - even though, legally, most will only agree to a 12-month tenancy agreement, which may or may not be renewed.
In my article, I called for action to be taken to better protect these vulnerable homeowners. This week, I learned that three of these sale-and-rent-back companies, A Quick Sale, North East Property Buyers and UK Property Buyers, have joined together and set up a trade association to try to provide their clients with an extra safeguard.
I was interested to find out whether it would actually have any teeth.
Good Practice - At Last!
As members of this new body, The Property Buyers Association (Probas), all three companies have to abide by a Code of Practice. This lays out some quite obvious (but long-overdue) guidelines on good practice, such as expecting members to advise clients to take independent legal advice and to act transparently in terms of rent costs and property valuation.
So far, not much to get excited about.
But in a much more important move, the association has stated that it will offer homeowners compensation if a member breaks its promise that their tenancy agreement will be continuously renewed (although this doesn't cover 'bad' tenants who fail to pay the rent etc).
This is a crucial step forward, in my opinion, as I think the main reason why homeowners are willing to sell their homes below market value is because they believe they will be able to stay in their property 'for as long as they need to'.
The association has not yet decided exactly how much compensation will be offered, but founder Glyn Thomas promises it will be a 'punitive' sum, large enough to ensure the company involved regrets its actions.
In another positive step forward, the Code also states that all the landlords involved with these companies must be Criminal Records Bureau checked.
But while I welcome all this progress, I still have serious doubts about whether this industry should be left to regulate itself. After all, unlike the Financial Services Authority, it cannot fine firms which treat their customers badly, only kick them out of the association.
And with just three members, Probas is likely to have very little influence on the industry, although if it gains a critical mass of members, this will change... So please, if you work in this industry, prove me wrong!
The Fool Steps In To Help
Of course, signing up to a Code and generating some good publicity about your company is all very well. Now, I know I'm a cynical hack, but I have yet to see much change in the attitude of Probas founding member A Quick Sale. Despite its apparent desire to raise standards in the industry and treat its customers fairly, it is still proclaiming on its website: 'You can sell your house, and then rent it back from us for as long as you need to.'
Yet, again, the maximum tenancy agreement available from this company is just 12 months. After this period, the tenant/former homeowner has no legal right to stay there.
A Quick Sale director Glenn Ackroyd told me last month that the company fully intends to continuously renew its tenancy agreements, but we all know the road to hell is paved with good intentions. If the company can't enter into a legally-binding agreement to back up its promise, then as far as I'm concerned, that promise is worth very little.
A Quick Sale does clearly state the fact that it only offers either six- or 12-month Assured Shorthold Tenancies in the literature you send off for. But in my view, first impressions count.
I think it is irresponsible of sale-and-rent-back companies to make such promises on their websites and in their advertising unless they also make it very clear that this promise is in no way legally-binding.
So I put this criticism to Probas founder Glyn Thomas and suggested Probas take action to put this situation to rights. And it turned out he has been reading The Fool and, to my great surprise, agreed with me.
'It's a good idea,' he said. 'It would be easy to change a website and add a sentence to say this promise is subject to legal restrictions - and then allow visitors to click on "legal restrictions", and understand better what it meant.'
And that's not just talk. In March, he plans to call all the sale-and-rent-back companies in the UK together and table our suggestion to his members, who can then vote on whether to accept it.
'Sometimes,' he explained, 'you're too close to these things to see them yourself.'