Has anyone had any dealings in cases where clients have sold their homes to one of these firms that rent it back to you.

It works like this. Client sells to firm who provide lump sum to client while retaining 30% of market price on condition that client stays in property for ten years. After that period 30% is released but only when client vacates after that time. Firm charges rent after sale.

For those experiencing real financial difficulties it can be a godsend because they see it as a way out of their financial mire but the mess arises when they attempt to claim HB.

Reg 9(1)(h) stops HB being paid if claimant owned house immediately before renting. There is a saving provision that if the decision to sell was the only way to continue living in the property but that puts the client through the hoops of proving why they sold, what other measures did they take etc. Have a look a CH/3450/2006.

If thats not bad enough our HB are now saying that the 30% retained by the firm counts as a beneficial interest in the same way as an investment.
Rub is that even before 9(1)(h) considered now client will be refused HB if the ten year retention figure held by the firm is over 16K.

These firms are springing up all over the place and we've already had problems. Adverts for the firms promote the pluses but no mention of HB difficultuies.

Any thoughts.

Just one thought.

If he can't get his hands on the 30% for 10 years then that is a future interest and he is not beneficially entitled now.

My thought. If theres contractual terms to effect no money for ten years then thats reversionary. However, HB saying 30% retention equates to 30% ownership of property.

This is a real bag of worms. Not just for Reg 9 but what happens if client in the absence of HB has to vacate the house. 30% retention lost because vacates the property. If they try to claim HB for the property they move into will HB then turn round and say there has been deprivation of capital.

I agree with Nevip on the issue of so-called "beneficial interest" - subject only to the possibility of deprivation (generally unlikely in these cases).

But, Semitone is right. HBR 9(1)(h) is a real problem. The "product" is being sold on the basis of it being a utopian panacea stretching all the way to the horizon in front of the client, while no mention is made of the potential fire rapidly closing in from behind, ready to overtake long before the client can reach the horizon.

In the vast majority of cases, ownership is not being relinquished in order to remain in the dwelling. It is being relinquished to liquidise as asset for personal expenditure. In such cases, it is impossible to (truthfully) argue that there is entitlement to HB.

I suppose there are two fundamental viewpoints:

1) HBR 9(1)(h) should be modified so that such equity schemes are not caught by that provision (although, I can myriad problems arising out of that (e.g. definition & interpretation of such schemes etc / calculation of resulting capital etc)); or

2) HBR 9(1)(h) is fine as it stands, with the problem being caused by those selling a financial product without properly advising clients of the potential consequences. Based on personal experience of another financial product, the lack of PROPER advice is as likely to be down to ignorance as being due to a deliberate omission by the seller. What a surprise..... .

Regards

I advised once, could prove the transaction was to pay debt (don't recall a provision about 10 years down the line .....) client awarded HB evnetually....

Based on existing case law, settling a debt would not, in itself, be enough to avoid HBR 9(1)(h). The crux is still whether or not ownership of the dwelling had to be relinquished in order to continue occupation of the dwelling. Relinquishing ownership to settle a debt would be relevant only if the clmt was able to show that s/he could not otherwise continue to occupy the property (e.g. a loan secured against the dwelling).

To avoid a possible oversight, it may be worth mentioning that HBR 9(1)(h) bites for 5 years maximum after ownership is relinquished.

"The "product" is being sold on the basis of it being a utopian panacea stretching all the way to the horizon in front of the client, while no mention is made of the potential fire rapidly closing in from behind, ready to overtake long before the client can reach the horizon".

Thats wonderful Kevin. Pure poetry.