Property Buyers Professional Code of Conduct (Code)
Introduction to the sale and rent back market
The buy-to-let investment property market has been growing exponentially in recent years as phenomenal increases in property prices across the UK have made it a more attractive investment option than the sorrowful stock market. However, as the buy-to-let market becomes increasingly complicated with frequent interest hikes and a glut of properties on the rental market keeping rents low, people are turning a relatively new phenomenon, buying below market value (BMV).
With millions of homeowners burdened by debt, sale and rent back is becoming a booming business as those who need to sell fast are willing to accept a big discount from investors, and with repossessions up by 30% on last year and profits harder to come by in the traditional buy-to-let sector, it is likely that this industry will only grow further.
1. Why is a ‘National Property Buying Code of conduct’ needed?
Turn to the classified sections of most local and tabloid newspapers and you will see brightly coloured adverts offering to buy homes for cash in just one week, best price paid, no legal fees etc, which are supplemented by door to door leaflet drops. The advantages are obvious. The seller gets urgently-needed cash to pay off debt (typically by selling their home for 70% to 80% of its market value), gets to remain in their home and does not have the financial black mark of repossession on their credit file.
However, buying ‘distressed property’ from people in debt as a property investment is not regulated in any way and has left the doors open to ‘shoddy’ and ‘sharp’ practice. Most companies practicing ‘sale and rent back’, so called ‘equity release’ or ‘repossession sale’ schemes are ruled by the bottom line, and as the industry is not regulated there are no guarantees that the seller gets to remain in their property beyond an initial six or 12-month tenancy agreement, meaning there is no security of tenure for people when they are at their most vulnerable.
There should be a Code in place which stops these companies being able to get away with, not giving people looking to sell their home for whatever reason, the full facts before they make a decision, just as they would when if they arranged a mortgage or signed up to another financial product.
2. Why regulate the ‘sale and rent back’ industry now?
The sector was regulated a number of years ago by the FSA.
3. What will regulation achieve?
Regulation, standard practice, advice and credibility.
The Property Buying Code will assist the industry by providing a benchmark of basic requirements for a company operating in the BMV market place. By facilitating open discussions around the challenges faced by its members, in the delivery and management of property buying, the Code should aim to speed up the process of resolving key questions facing both buyers (property investors) and vendors. The end result would be the regulation of those companies operating bad practice, complete consumer protection regarding sales and advice and access to compensation schemes (all of which are currently offered by the equity release industry, which is authorised and regulated by the FSA).
The professional Code will aim to achieve improved satisfaction for investors and vendors through better education and standards, and will distinguish those ‘property buyers’ that are more ethical in their approach to buying than those that do not comply with the code of conduct or adhere to its standards.
4. How will it benefit the industry?
In seeking support from the Council of Mortgage Lenders (CML), building societies, mortgage brokers, The Property Buyers and other key partners, we would look to create a code of conduct alongside the establishment of an Association of Property Buyers (a leading UK professional body) to enable the Code to achieve credibility. With so many companies in the market, the Code will provide a stamp of approval that is currently lacking in the industry. Presently there is no code of conduct or guidelines on best practice standards available to the industry. The new Code will set out values, responsibilities, obligations and ethical objectives of member organisations.
5. Who will create the Code?
CML, Mortgage Lenders, property buyers and other key partners
The process will involve:
• Regular monthly meetings
• Agencies and property buyers
• CML, legal professionals and key mortgage brokers from the start of the code of conduct
• An ongoing review of the code of conduct over four months with all members to ensure all areas are covered.
6. How involved will property buyers be?
The Association of Property Buyers will include representatives from a variety of property companies, individual investors and mortgage companies, each of whom will have been active in creating the code of conduct. Members will represent the interests of property buyers and this collaborative approach of sharing experiences will facilitate a meaningful benchmark for best practice that will serve as a guide to buyers and vendors alike.
7. Is the code of conduct necessary?
The Code will be designed to give clients a benchmark against which to judge property buying companies and individuals. To enable this, the Code will cover three key areas related to best practice, a financial vetting process of buyers or investors, a grade experience and knowledge (testimonials and references).
8. Is there a need for the creation of a ‘best practice’ logo/symbol?
We would expect the Code to be self-certifying. We would offer a method of publicly declaring compliance as best practice. When the icon is used it will either link directly to the Code document through the Association of Property Buyers or include a link next to it. This will allow anyone dealing with a property buyer declaring themselves as compliant to click through to the Code and use it as a checklist. If a company is found not to be compliant, yet it is declaring itself as such, processes will be in place to report it to the Association of Property Buyers. As with all aspects of the Code, this will be closely monitored going forward.
9. Why must there be a Financial Vetting process?
While it is true that a member may have a trading record that is authenticated by an accountant – a buyer without audited accounts may also be able to provide an effective and personal service and, by showing properties bought, access to vendor references, and a mortgage brokers report on an individual, therefore the vetting process would be complete.
10. Membership
Memberships would be defined by experience, knowledge and skills/services – but would not preclude inexperienced buyers who agree to and sign the Code.
11. Why must a property buyer be a member of the trade body?
The main purpose of this clause is to provide a mechanism whereby the Code can be policed within the self-regulatory regime. Such a regime is a privilege not a right, and the industry needs to demonstrate both to end-users and legislators that it is working effectively. Membership of the trade association will provide basic screening of companies to ensure they are able to fulfil their obligations under the terms of the Code. A trade association will also provide a mechanism for formal complaints about breaches of the Code and for appropriate action to be taken where there is clear evidence of inappropriate behaviour.