Memorandum from Elderflowers Projects Company Ltd (CRED 33)

 

SUMMARY

I. One of the means suggested to help existing homeowners who have difficulty paying the mortgage is to sell part or all of their house and then rent their home back from a third party.

 

II. Where people have difficulty in paying their mortgage, they may well have other financial difficulties, and may be on a low income or lose their jobs.

 

III. If people sell their house (or part-sell it) and rent it back, and they subsequently apply for Housing Benefit, they are considered NOT ELIGIBLE for receipt of benefit within five years of the sale (unless they have received a letter from their mortgage lenders threatening repossession).

 

IV. People who sell their house and then rent it back need to be given permanent tenure, allowed Housing Benefits where they have use the equity to pay off debts, and be protected from unscrupulous landlords.

 

 

SUBMISSION

 

1. One of the methods to help existing homeowners affected by the credit crunch is to allow the homeowner who has difficulty paying the mortgage to sell their home of part of their home to either the local council or a housing association and then rent it back from them.

 

2. Where people have difficulty in paying the mortgage they may well have other financial difficulties and may be on a low income or facing redundancy or have lost their job/s. They may therefore need to apply for Housing Benefit and Council Tax Benefit.

3. If people sell their house (or part of it) and rent it back, and they subsequently apply for housing benefit, they are considered not eligible for receipt of benefit within five years of the sale (unless they have received a letter from their mortgage lenders threatening repossession). In the example set out in paragraph 7, the person sold in order to pay debts. This is likely to be the scenario in many cases today.

 

4. In such a case, they will have to use whatever savings they have remaining to pay the rent; if they do not have savings, then they face homelessness. If they have to move elsewhere to rent, the Council will then pay Housing Benefits.

 

5. Adam Sampson, Chief Executive of Shelter, has called for the regulation of sale and rent-back schemes. He has said, "The Financial Services Authority ... needs to act immediately and decisively to stop any more homeowners from being robbed of their homes by these unscrupulous companies."

 

6. 18,810 equity release loans have been taken out in the past 12 months (The Times, Money 18/10.08, p.13). These schemes have added pitfalls in that, according to the Office of Fair Trading, people who sell their houses and rent-back are vulnerable and have little protection against eviction. "The OFT says that in the past two years, 50,000 householders have sold their homes to landlords, often for less than the market value, on the understanding that they could remain as tenants. Instead, many were evicted soon after the property sale." (The Times, Money 18/10.08, p.2)

 

7. An example of the problem outlined has been faced by the author of this paper. She sold her home in 2006 to pay off the mortgage and all debts, as she was ill, and although still working was 67 years old. Her husband is on incapacity benefit. In 2007 she became seriously ill and applied for Housing benefit as she was unable to continue to work. The Housing benefit application has been refused by the Council due to the fact that she sold her house and was still living in it, even though she could prove that she had financial problems and faced repossession and bankruptcy unless she sold her property. She has been informed by both the Council and the Tribunal that instead of selling her house she should have extended her debt and mortgage payment period: this is in the case of increased illness and advanced age.

 

8. After she applied for Housing Benefit she became very ill and was hospitalised. She had a major operation in December 2007 and has not been able to work since then. She will be 70 in January 2009, and she is in receipt of Pension credit guarantee. Nevertheless the Tribunal maintains that she should have extended her debts and mortgage repayments and gone back to work after she recovered from the operation she underwent.

 

9. This matter is now under appeal, and if she loses the case, although still ill she will be forced to move to another house, where she will be granted Housing Benefit.

 

10. This is a difficult situation made more difficult by the interpretation of this advisory law about not granting Housing Benefit to people who sell their house and rent it back.

 

11. We suggest that the Committee looks at ways of changing the law to allow people who are in debt to granted permanent tenure to remain in their houses after they sell them and pay off their debts, thus not adding to the many cases of people being made homeless by repossession. Their access to Housing Benefit should also be made possible if needed.

 

12. Similarly, people who are at the mercy of unscrupulous landlords need to be protected and given permanent tenure.

 

November 2008