Rentback Charter Association

[Boxer]

Glenn Armstrong - Kevan Keegan - etc started this off a few months ago - does anybody know what became of it?

[davey]

I was wondering the same thing myself. It would be good if one of them came along to tell us.

Davey

[jeanpaul]

Yes.

I attended a Berkshire Property Meeting on February 16th at which Glenn, Kevan, Phil Martin, Juswant Rai and Mark Penn all spoke. Although not the main topic of the evening, the message was clear: RBCA survives; several other groups have folded; and unless we all join and the RBCA makes strenuous (and non-profit) representation, RENT BACK AS WE KNOW IT WILL END AFTER JUNE 2009.

It sounded like another of those wonderful pieces of excellently well thought-out legislation (like paying tenants their housing benefit) that will just screw the industry.

It reminded me of joining PCG (Professional Contractors Group) 9 years back when the government (well, the Civil Service in that instance) attacked a section of the entrepreneurs in our society with the IR35 ruling, with all of its onerous tax implications. PCG quickly grew to 11,000 members and went on to fight many important battles, right through to the House of Lords. More to the point, it eventually became a respected lobbying force.

My opinion is that we should join forces now (and it must be NOW) to preserve and fight for a business for which there IS a REAL NEED. Rent back is not all about rip-offs (until HMG stepped in, that is) - it's about fulfilling a need and helping people. I am therefore joining (at http://www.rentbackcharter.com/) and wish I'd done so earlier.

How can we help? The presenters asked for feedback, specifically:- Experiences with rent-back tenants; Examples of what you've done with yours.

I have 2 such tenants and consider myself to be a 'good landlord', in that I've trusted both of them to help themselves and pay their rent (and save a HUGE amount) even though they've both hard a hard time of it. Of course the classic RB tenant is in that state because he/she couldn't manage in the first place - so who's at risk here? Obviously, it's the landlord! (Well done, HMG.)

So - please join the fight. Details at http://www.rentbackcharter.com/.

[Andrew]

I know you, JP, and I do indeed know that you are a good landlord. I also know other good landlords, and I like to think that I am one myself (and yes, I also have a rentback in my portfolio).

However, I also know (and know of many more) landlords who, for one reason or another, find themselves in situations for which they are inadequately prepared, both educationally and financially. Specifically, in many cases, they lack any form of real financial education, or financial resource of their own, and rely upon buying NMD (as opposed to NMLI) to be able to invest at all. They then return to their day jobs, scraping by to make ends meet themselves, confident that their portfolio is growing.

Little doubt the rentback vendor/tenant is happy too, because they are still in their home.

But many of these under-resourced landlords were sucked in well out of their depth in 2007/8 and are only surviving now because of the recent falls in interest rates. But what happens when they come to the end of their discounted mortgages, the rate soars to the lender's SVR, and the mortgage payment exceeds the rental income?

Will they then sit there and subsidise the tenant's (or maybe tenants') accommodation? Can they even afford to if they have by now been made redundant themselves?

The chances are that if they followed the advice of gearing high to take cash out, for living on rather than reinvesting FFS!!!, and took 85% LTV, they now can't remortgage to get a better interest rate because the property now values lower and 75% LTV is the most that's available! Any fool can make money in a rising market, but many of these poor souls were sucked in to speculating rather than investing...

What was the common advice? So long as you can get 18% BMV then remortgage at 85% LTV you'll get cash out. But how many people were taught how to ensure that the deal really stacked up (maintenance, insurance etc.) and how many relied upon discounted mortgages to even make it work in the first place?

An 'investor' who was suckered into buying 10 properties like this may soon find themselves unable to cope, so what happens to their vendor/tenants then? It would be a shame if, having sacrificed all their equity (to buy the 'investor' a shiny fast car), they end up getting chucked out of their homes anyway when the mortgage company repossesses them from the investors!!!

I won’t go on about this any more, because I wrote about it before in great detail here Why Did Mortgage Express (MX) Withdraw Their Same-Day Bridge and Re-mortgage Product? http://www.summitfinance.co.uk/blog/?p=21 ...nearly a year ago!

Coming to the point though, I do think that some regulation of the rentback industry is long overdue, because many investors are making promises to the vulnerable and financially naive (and I use those words as an alternative to the more common motivated or distressed) vendor/tenant that they are completely unable to keep.

Specifically, I think it is critical that any investor entering into a rentback purchase is able to guarantee to the tenant that they can indeed remain in their home for as long as they want. If not, what’s the true cost:benefit or risk:reward ratio to the vendor/tenant? And how can any investor offer that guarantee if both ill-educated and reliant upon something that is entirely outside of their control?

As a mimimum I think that some form of licensing of rentback investors is called for, and that the requirements to get a licence should include detailed checks into both the investor's financial literacy and funding position. This is simply to protect the vendor/tenants. I also think that all vendor/tenants should be given a clearly-worded single sheet that explains what is guaranteed and what is merely hoped for or intended.

How does that compare with what is proposed, by either side?

[jsampson]

Hi- there are now, as you all probably know, only two representative bodies of any substance. NLA Rentback (ex NASARB) has taken on APBA and PROBAS and this leaves RBCA.

I think the fundamental problem for RBCA (and I have spoken to Kevan about this before anyone gets upset with me ) is that the private investor is dead post July (as has already been mentioned) without them having sufficient capital adequacy when full regulation comes in in 2010. Whilst a figure hasnt formally been placed on this, the sum of £100k in liquid funds (i.e. over and above money to buy properties) has been mentioned.

I think the RBCA will do extremely well to change the direction that the government are moving on this (try re-reading Yvette Cooper's statement on SARB from October last year and you will see how intransigent they will be) but I do think there will be merit in some form of collective and we are certainly working on something of this ilk.