Letting to previous owners

by Readers Question

14:02 PM, 8th October 2014
About 6 years ago

Letting to previous owners

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Letting to previous owners

I have recently signed for a property (completing next week), and the estate agent (with whom I have had a long business relationship) indicated that the previous owners would be interested in renting it back from me. Letting to previous owners

I must point out that the property was a repossessed house and therefore sold by the bank as a mortgagee in possession.

I do not have a mortgage on the house, but I have noted from other BTL mortgages which I hold on other houses that often there is a clause prohibiting renting back to a previous owner. Is there a reason why banks do not like this? If there is this would make me cautious about doing it, but on the other hand, renting back to the previous owners might save me money as the house is currently decorated to their tastes (and a very high standard, not perhaps to everyone’s tastes!!).

The thoughts of those more knowledgeable and experienced than me would be very much appreciated.

Many thanks

William


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Comments

Mick Roberts

14:41 PM, 9th October 2014
About 6 years ago

No, I’m not missing the point-Haven’t u ever stuck 2 fingers up at the establishment?

I’d help the family, then face the consequences.

But as u say million pound fine, then I probably would look into it more. Most houses I buy non agent route are from people that know me, or know of me from friends/family/tenants.
I’d be arguing mate going down the pan, bought his house top stop him getting repossessed, sort the legalities out later-We din’t have time to mess about or bailiffs & hostel-I can avoid that.

I’m not gonna’ mislead anyone, that should reduce the fine to half million.
I’d tell ‘em what house is worth if they waited.
And I wun’t be selling to investors.
I wun’t be charging fees, I used to pay their fees.

Your second link not opening up.

I do hear u, what about them moving out & moving back in a day later? I know I’m being silly now, but my mates being repossessed unless I buy his house

Yvette Newbury

22:39 PM, 10th October 2014
About 6 years ago

We were in this position in the summer of 2013 on a flat we completed upon, as the previous owner did not want to leave the area but could not find anywhere to rent. We refused his request to rent though as we felt uncomfortable on the position we would be in if he was unable to, or stopped paying, rent given that he was very friendly with all the neighbours etc. We quickly rented the property and we have never regretted our decision.

Howard Reuben CeMap CeRER

16:50 PM, 11th October 2014
About 6 years ago

This is labelled as a 'toxic' issue by the FSA (now the FCA) and indeed all SARB operator had to ultimately be licensed to carry out this type of transaction (irrespective of whether a mortgage was arranged or not).

I also see the 'plus' side as offering a home to someone who was about to lose theirs, providing what some might say is a win/win situation, however as the last few years have gone by and I have had the same conversation with numerous BTL lenders, they all seemed to concur that it was an (im)moral issue and not a decision (ie not to lend) based on financial viability. The moral issue then became a reputational issue and the lenders just simply do not get involved now as they do not want to be seen as unethical, immoral or tarnished with a 'not so whiter than white' lending policy.

Colin Belton

20:55 PM, 15th October 2014
About 6 years ago

Great thread because it is not a simple answer to the question. It would seem that it is not possible as a company unless regulated by the FSA. It is however possible if done between two individuals, but not to the betterment of the buyer. I did a blog with some links to great information. Have a read at https://www.rentaljoy.com/blog/2014/10/property-for-cash-is-sale-to-rent-back-legal/

Mark Alexander

21:03 PM, 15th October 2014
About 6 years ago

Reply to the comment left by "Colin Belton" at "15/10/2014 - 20:55":

Hi Colin

I read you blog earlier this evening (I signed up earlier this week) and thanks for the link again by the way 🙂

Where does the FCA define "betterment" and the right for two unrelated individuals (blood or marriage) to transact a Sale and Rent Back transaction without being a "fit and proper" regulated person or body?
.

Colin Belton

4:56 AM, 16th October 2014
About 6 years ago

Great to have you subscribed Mark.

Here is the url to the comment on the Tessa Shepperson site (http://www.landlordlawblog.co.uk/2014/01/30/what-tenancy-is-appropriate-when-the-seller-stays-on-as-a-tenant/)

Quote below is the pertinent information:
"To be clear:-

My comments apply to SARB post 2009 not before.

The opening post clearly refers to a sale and rent back situation; the talk of what type of tenancy it is is muddies the waters and is secondary to SARB issues.

SARB is not outlawed either commercially or between individuals.

However to operate commercially you must be regulated by the FCA.

There are currently NO companies that hold FCA regulation for SARB.

The FCA brought in interim regulation then full regulation and were very unhappy about the practices of the regulated firms so they shut it down completely. They have since reopened but no firm has applied again for regulation hence no firm currently regulated to do so.

A SARB between individuals is allowed BUT there must be absolutely NO commercial motive or gain for the buyer (rental profits, capital gain etc). Think rich relative helping out. To do do with commercial gain in mind or any such agreement as such would require FCA regulation. Not doing so is a criminal act.

Lending is a separate issue; no lender would knowingly agree to fund a SARB arrangement even a non commercial one so it would have to be a non commercial cash purchase – again think rich relative. To have obtained a mortgage on a SARB would be considered deception and a lender will take action to repossess should they discover this.

It is unlikely the FCA will give a clear yes/no on any regulated activity; they will simply state they produce the regulations and its up to individuals to interpret them."

Mark Alexander

9:52 AM, 16th October 2014
About 6 years ago

Reply to the comment left by "Colin Belton" at "16/10/2014 - 04:56":

Hi Colin

I can also drive through a 30 MPH area during school hours at 100 MPH but I would probably be damned if I did. The SARB regulations are no different, i.e. as an individual I could do a SARB deal with a friend but the moment I charged rent, arrange a mortgage on the property or make a profit from the deal I would be breaking the law, definitely the FCA SARB regulations and mortgage fraud (up to 14 year prison sentence) is a mortgage was sought without declaring Sale and Rent Back.
.

Mick Roberts

14:17 PM, 16th October 2014
About 6 years ago

You're talking me into to it, you're talking me out of it.
So can we surmise if I buy & don't change the rent for 5 years. would I be OK?

Mark Alexander

14:24 PM, 16th October 2014
About 6 years ago

Reply to the comment left by "Mick Roberts" at "16/10/2014 - 14:17":

Probably not and definitely not if you evict within 5 years (regardless of reason) and/or try to get a mortgage on the property.

Mark Alexander

14:26 PM, 16th October 2014
About 6 years ago

Reply to the comment left by "Mick Roberts" at "16/10/2014 - 14:17":

PS - if your tenant didn't pay you rent and you tried to evict him then he could argue that it is very obvious that you only entered into the arrangement for commercial gain. You wouldn't have a leg to stand!
.

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