Victims of sale and rent back scheme to lose homes - test case

The Supreme Court could not to come to the aid of victims of sale and rent back schemes in the test case decision of Scott v Southern Pacific Mortgages [2014] UKSC 52.

What is a sale and rent back agreement (SRB)?

SRBs involve individuals selling their homes, usually at a discount and obtaining an agreement to remain in the property for a set period. Typically this is pursuant to an assured shorthold tenancy. The idea is to help homeowners clear their mortgage, or other debts, whilst remaining in their home

Critical path

In 2009 the Financial Services Authority recommended that consumer detriment occurring in this market warranted a fast regulatory response, and in the same year SRB’s were made regulated ac-tivity under Financial Services and Markets Act 2000

In February 2012 the FSA (now the FCA) reported that most SRB transactions were either unafford-able or unsuitable and should never have been sold. Following a review of all regulated SRB firms, the FSA referred one firm to its enforcement division while others either stopped taking on new business or cancelled their permissions. Effectively, this meant the entire SRB market was temporar-ily shut

Subsequently, following a comprehensive review of mortgage markets between 2009 and 2012, the Mortgage Market Review (MMR) final rules were published in October 2012. Reforms to SRB schemes came into force on 26 April 2014

Too little too late for some

On 24 January 2012, the Court of Appeal held, in several conjoined appeals, that the mortgage lenders took priority over the occupiers in the SRB transactions in question. The properties were bought by individuals connected with the SRB organisation. They obtained buy-to-let mortgages in their own names. The mortgagees were unaware of the SRB arrangements. The individuals default-ed on the mortgages. The court held that no equity arose in the sellers' favour prior to completion and even if it had the mortgagees did not take subject to it.

In Scott v Southern Pacific Mortgages [2014] UKSC 52 a test case, the appeal by one of the sellers has now been dismissed by the Supreme Court (who expressed its