Housing Rental Purchase Schemes

HC Deb 30 October 1987 vol 121 cc624-32

Motion made and Question proposed, That this House do now adjourn.—[Mr. Dorrell.]

2.30 pm

Mr. Peter Pike (Burnley)

I am grateful for this opportunity so soon after the recess to raise this issue, and I know that many hon. Members of all parties are concerned about it. This Adjournment debate enables me to do two things today: first, and most important, to put to the Government the case for them to take action on housing rental purchase schemes; secondly, to make any people who are at present entering into such contracts think carefully before they do so and to advise them that they should consult their solicitor and employ a surveyor. My own view is that even if they take those precautions they will be going ahead with a far worse deal than they may expect.

This problem was brought to my attention just before the summer recess. Immediately, I tabled a number of written questions and wrote to the Minister for Housing and Planning. As a result of the publicity arising from those initial actions, a number of other cases have been raised with me. What I have seen and discovered has appalled me and convinced me that action must be taken as speedily as possible. As it is not just a local problem, my hon. Friend the Member for Leeds, West (Mr. Battle) will speak briefly. Many other hon. Members have expressed the wish to speak, but that is not possible.

This is not a new problem. It has been raised in the House previously. On 26 June 1974 my hon. Friend the Member for Kingston upon Hull, North (Mr. McNamara) introduced a Bill to deal with some aspects of rental purchase. He said: It may well be that the agreement is not binding in law, and that any solicitor could drive a coach and horses through it."—[Official Report, 26 June 1974; Vol. 875, c. 1575.] In 1987, that is no longer the position. It is apparent that the present rental purchase agreements are watertight and legal. However, although they are legal, they use the law to the limit. It is all one way and is against the interests of the would-be-purchaser.

Preston borough council has published a leaflet about this. It is not the only council that has tried to take a stand against the practice. I shall quote the main items from the Preston leaflet because they summarise the main problems that I shall pursue. The leaflet is headed Rental Purchase schemes — Beware! Tempted by the chance to buy?". I hope that the Minister will note the main problems that the leaflet summarises. It states: Under a Rental Purchase Agreement

1. 1. You will have more limited rights than either a private tenant or an owner-occupier.
2. 2. You will not have the full benefits of owner-occupation or the full rights of regulated tenants— only the status of a licensee.
3. 3. A court order will be required to obtain an eviction, but this is usually granted because the licence gives you only the minimum protection under the law.
4. 4. You will be paying approximately 25 per cent. interest per year compared with approximately 11 per cent. to a Building Society or 19 per cent. to a Credit Company.
5. 5. The Rent Officer cannot fix a fair rent as rental purchase schemes do not fall within the Rent Acts.
6. 6. Housing Benefit will not automatically be paid—each case will be individually examined."

Local authorities are taking different lines in different areas. Some are refusing to countenance such agreements, some are meeting the demand in full and some are setting limits which they believe to be reasonable in their area. However, many people who have entered into these agreements are finding that they are not getting the benefit that they expected to meet the commitment that they have entered into.

The leaflet continues: The property involved is likely to be quite old and the level of improvements carried out prior to the 'sale' arc likely to be low, therefore leading to high repair and maintenance costs. You will be responsible for all repairs and maintenance. It goes on to explain why Preston council opposes the principle of rented purchase and what it wishes to do about it.

Pendle borough council has also had a report on the subject and Blackburn borough council has taken a strong stand. Many local authorities are concerned. Burnley borough council housing department has a dossier on the subject and was represented at a seminar in Bolton on 21 July. In a letter to me dated 24 August, Chief Executive Brian Whittle said: This is obviously a very vexed question but I am not aware of anything which is unlawful in the arrangements made by Bradford Investment Company although in many other respects the arrangements are unsatisfactory. In a letter to me dated 13 August the Minister of State also referred to the Bolton seminar, which an official from his Department attended as an observer. The letter said that the Association of Metropolitan Authorities had undertaken to collect evidence. The Minister stated that he took the matter very seriously and that any abuses should be stopped. I hope that we will receive further assurances from the Government today.

What are the abuses? I shall refer to rental purchase in general and to Bradford Investments plc in particular. That company was spotlighted on Tuesday this week in the Channel 4 television programme, "4 What It's Worth", and the company was given the opportunity to appear or to respond to certain points, but chose not to do so, saying that it did not regard the matter as appropriate for television programmes or public debate. Bradford Investments plc is noted for its attempts to prevent individuals or the media from raising issues affecting it or criticising it in any way. Its immediate resort to solicitors' letters or injunctions in such cases suggests that it has something to hide. It has pursued that line with television, radio, the local and national press, Shelter and its own purchasers. This threat to people purchasing houses from the company is clearly intended to prevent them from airing the problems that they discover once they have signed an agreement.

The company's advertising holds out the vision of home ownership to people who would not otherwise have the chance. I am 100 per cent. in favour of people having the opportunity of home ownership, but that is not the argument today. The scheme that I have described is false and misleading. It looks attractive and people fall for the bait. Those attracted to it are mainly people on unemployment benefit, invalidity benefit, and so on, who would find it difficult to obtain a mortgage from a building society or bank. Moreover, the properties are grossly overvalued. I have proof that the company paid £6,500 for one property and sold it for £10,950 after spending minimal sums, mainly on superficial work to make the property look more attractive. That property was grossly overvalued, and surveyors' reports show many problems. One report lists 23 items needing attention.

The first abuse, therefore, is in selling properties of a poor standard at well above their true value. The second abuse is the interest rate, shown as 1.9 per cent. per month — equivalent to 25.34 per cent. per annum. The so-called purchaser does not have the rights of an owner-occupier purchasing with a mortgage or those of a regulated tenant, but only minimal protection. That is appalling in 1987. The cost of all repairs is the responsibility of the occupant, and in view of the type of property the cost is likely to be high.

One case was highlighted in the television programme "Watchdog", shown by the BBC on 18 August 1985. I do not know whether the person named is still a purchaser from Bradford Investments, but I cite a case that has already been publicised so as not to create further difficulties for my constituents in view of the pressure already being put on them by the company. Therefore, I shall use one case that has already been publicised, although I assure the Minister that there have been many such cases.

The "Watchdog" script states: Dave Scott and his family now have a loan and a house provided by Bradford Investments. Dave's buying his home for £13,500 whereas Bradford Investments obtained it for £11,500. And so. after making repairs, Bradford Investments made a profit of about £ 1,000. They then charged £325 administration fees just to sell their own property. They've managed to make all this money out of Dave, but he hasn't got any—he's on the dole, and has been for the last six years. So how can an unemployed man take on such hefty commitments? Well, the answer lies in the way Bradford Investments sells houses. Bradford Investments make buying houses seem so easy. Don't worry if you haven't got a job, Bradford Investments advertise houses for the unemployed. No need to worry if you're hard up, Bradford Investments offers a hundred per cent. credit. Don't be put off by complicated procedures, Bradford Investments boast you can move into your new house in just fourteen days. It all seems so easy. Dave Scott seized on the chance to buy his own home. But he's landed himself with a heavy commitment. Heavier than normal as Dave bought his house from Bradford Investments on something called 'rental purchase'. Rental purchase works like this: a customer sees a house advertised by Bradford Investments. If he has the money he hands over £500 cash deposit, if not, no problem. He just gets a friend or a relative to guarantee £1,000 for five years. A charge is put on their property by Bradford Investments. If, like Dave, the house costs £13,500, Bradford Investments gives you a loan of £13,000 over ten years. For this, you're charged a massive 25.34 per cent. interest — that's twice what the building societies charge. Dave repays this at £47.94 a week. However, because he's unemployed, the DHSS pays this for him. And that's not the only money Bradford Investments gets from the state —the Inland Revenue also hands over to them £17.30 each week in tax rebate on Dave's housing loan even though he's unemployed. But Dave isn't the legal owner of his house. Bradford Investments holds on to the title deed until they've received the final payment in ten years' time. Yet Dave, like all the others who've bought on rental purchase from Bradford Investments, had to sign a document saying he's responsible for all repairs. The script continues to give a number of examples, which are paralleled by cases in my constituency and other parts of Lancashire. In many cases Bradford Investments operates a guarantee so that if a person fails to meet his obligations the guarantor pays £1,000 — even if the purchaser owes less in arrears. The firm makes its justification for that sound very convincing in its documents.

Recently Bradford Investments took one of my constituents to the High Court in Leeds, claiming that he had broken an injunction restraining him from claiming that the company was dishonest. For obvious reasons I cannot get involved in that legal wrangle, although it provides one example of how Bradford Investments immediately resorts to legal action if it is criticised. However, I wish to refer to the editorial opinion in the Lancashire Evening Telegraph of 15 October 1987—the evening after the case was heard. Having dealt with Mr. Rickwood's case, the Lancashire Evening Telegraph states: following the High Court hearing, Bradford Investments issued a statement which appears to attempt to shift some of its complaint against Mr. Rickwood, and some of the restraint imposed upon him, on to this newspaper. For, in a press release which says that the company was not prepared to submit to the sort of tactics Mr. Rickwood employed in his demand for compensation, the firm deplores an article which appeared in the Lancashire Evening Telegraph last month, reporting Bradford Investments being granted an interim injunction to stop this man attacking them. The Lancashire Evening Telegraph editorial says that the paper always tried to deal with the matter in an objective manner.

The editorial continues: Indeed, most of the communications from Bradford Investments to ourselves have been in the style of solicitor's letters. What Bradford Investments has to fear from public discussion of its methods in the controversial field of rental-purchase is something about which a reasonable, fair-minded person might wonder. The paper concludes by saying that it will not be stopped: the Lancashire Evening Telegraph will, as always, continue to monitor and report matters of public interest and will not be scared out of that duty. There are many other examples and factors. Today I received a letter from the Lancashire and Cumbria area branch of the National Association of Citizens Advice Bureaux. The branch made many points in a briefing note which was sent to its officers. I shall let the Minister have a copy, because it deals with the points that I have made, and additional ones. I urge the Minister to look at that document and the agreement. I hope that pressure will be applied under the housing legislation which is to be soon considered by Parliament to restrict such practices. If it is found that controls cannot be imposed, those practices should be outlawed.

2.45 pm

Mr. John Battle (Leeds, West)

I should like to speak briefly in support of my hon. Friend the Member for Burnley (Mr. Pike) and to underline the fact that the activities of companies pushing rental purchase are having a detrimental impact elsewhere, not least within my constituency of Leeds, West and the Leeds district as a whole.

Leeds is well known throughout Britain for its classic back-to-back housing. Although many of the 72,000 back-to-back houses standing at the turn of the century have been demolished, there are still inner-city areas of substantial back-to-back and on-to-the-street terrace housing left standing. There are numerous signs of available rental purchase properties especially in the Armley and Burley area in my constituency. Bradford Investments signs are popping up on practically every street. I should like the Minister to ask her Department's officials to visit and inspect what is on offer behind those signs.

As my hon. Friend the Member for Burnley said, the company is offering a scheme aimed at people on the lowest incomes, but they are schemes for which people can pay dearly. They ask for repayments, which are often tacked on to the housing benefit scheme, well above the cost of building society mortgages. There is no ownership until the purchaser pays the final instalment. Although the rental purchaser does not own the property, he is responsible for rates and repairs inside and outside the houses. Such houses in the Burley and Armley areas are often in need, to say the least, of full-scale, whole house improvements.

Rental purchasers get the worst of both worlds. They are responsible for repairs as though they own the property but they do not have the reality of ownership. In addition, it is clear that the increasing capital value of the house goes to the company until the purchaser can complete all the payments. If the purchaser fails to keep up with the payments, the company can apply for eviction. Rental purchasing offers limited security of tenure. This means that, in practice, a person could lose not only his home but all the money which he has paid under the agreement up to that point. He cannot sell the house to another person and he could end up homeless. Rental purchasers in Armley have come to me asking for help in finding them a home because they have had to endure unacceptable damp conditions. They have not been able to keep up with the costs of their home and have had to turn to the local authority for priority rehousing as homeless.

It may be as the advertisement for Bradford Investments which appears in the local Yorkshire evening newspaper says— Thousands of people, employed and unemployed, have found rental purchase the answer", but others feel not only that they have been cheated but that often they have been trapped into paying well over the odds for substandard housing. I respectfully urge the Minister to look into this matter and to bring before Parliament proposals that will safeguard our constituents.

2.48 pm

The Parliamentary Under-Secretary of State for the Environment (Mrs. Marion Roe)

I am grateful to the hon. Member for Burnley (Mr. Pike) for raising this subject and for the contribution of the hon. Member for Leeds, West (Mr. Battle). As I am sure they know, it is one in which my hon. Friend the Minister for Housing and Planning and I take a keen interest. We have expressed our concern that if abuses are taking place and hardship is being caused to innocent people, these abuses must be stopped.

It might be helpful if I explain the differences between buying a house on a conventional mortgage and buying a house by rental purchase. With a mortgage agreement, a purchaser is normally required to pay the vendor the whole of the purchase price. A loan is advanced to the purchaser on certain terms, and the purchaser repays that loan under one of several different methods. As soon as he has purchased the property, he has a legal interest in the land, and ownership of the house is vested in him when the payment to the vendor has been made. If he should default on his payments and the house is repossessed by the bank or building society that made the loan, he will get back a proportion of the equity in the house.

With a rental purchase agreement, the purchaser pays in instalments. Rental purchase is defined in the Housing Act 1980 as an agreement for the purchase of a dwelling house under which the whole or part of the purchase price is to be paid in three or more instalments, and the completion of the purchase is deferred until the whole or a specified part of the purchase price has been paid". It is not unlike hire purchase. The purchaser has no legal interest in the property until he has paid the final instalment, just as he would not own a consumer durable until he had paid the final instalment under a hire purchase agreement.

Because the rental purchaser is engaged in the purchase of his property, rental purchase falls outside the scope of the Rent Acts, but he is eligible for housing benefit on the rental purchase payments.

As the hon. Member knows, there are precedents for people buying their houses by a mixture of part renting and part buying. Before the introduction of right to buy in the Housing Act 1980, local authorities operated schemes whereby they were able to agree to the price or premium for a council house to be paid by instalments under the provisions of section 104 of the Housing Act 1957. These schemes became obsolescent with the introduction of right to buy and were abolished under the Housing Act 1980. And, of course, we have well-established shared ownership schemes with a slightly different focus. Under these, a person may buy part of a property and rent the rest of it. The shared owner takes on a share of the equity right from the beginning of his agreement, and can buy more as time goes on. We have, of course, recently expanded the scope of shared ownership schemes under the Housing and Planning Act 1986.

Rental purchase is, however, rather different from shared ownership. The hon. Member has described schemes under which the legal interest is not transferred to the rental purchaser until he has paid the last rental purchase instalment. It is alleged that under the scheme currently operating in certain parts of England, particularly in the north-west and in the hon. Member's constituency, rental purchasers are taking out agreements which involve loans at very high interest rates — far higher than those on a conventional mortgage; that the payments are consequently high; and that many rental purchasers default on their payments and are subsequently made homeless. I understand that the purchaser takes on full repairing responsibilities in most cases, which would he normal if buying a property outright or on long leasehold, but is not eligible for improvement grants to do any of the work that may be necessary.

It is alleged that the houses which are the subject of the agreement are selling at above market prices, and that such renovation as has been done to them is purely superficial; and that because the purchaser does not have Rent Act protection, nor the statutory protection afforded to mortgagors, the vendor may easily evict him if he defaults on his payments. My hon. Friend the Minister for Housing and Planning has been asked by Shelter to carry out an investigation into the operation of these schemes in the north-west.

Two local authorities have written to my hon. Friend and his predecessor about the alleged deficiencies of the schemes currently operating, and the Association of Metropolitan Authorities has held a conference on the subject and promised to send us information about the companies operating in their members' districts. So far my Department has information only about one company—Bradford Investments — which the hon. Member mentioned. We have no evidence that the company is operating illegally, and we have had correspondence with only one current rental purchaser who is dissatisfied with the rental purchase system. We do not know how many people are buying their properties by rental purchase. how many may have defaulted on their payments or had their houses repossessed. We may know more when we have the results of the AMA survey.

I must stress that rental purchasers are not entirely without protection. The hon. Member will know that under the Housing Act 1980 we extended protection from eviction to rental purchasers against whom proceedings for possession are brought through the courts. The court has power to stay or suspend execution of an order for possession for such periods as it thinks fit. So if vendors are trying to repossess their properties, they do not have an automatic right of repossession, and the court has power to impose conditions on the payment of subsequent rental purchase instalments.

I am not of course saying that no hardship is caused by existing schemes, nor am I condoning the terms of particular agreements. I am simply saying that my Department does not have hard evidence about the numbers of people involved as vendors or purchasers or about the type of abuse. It is not, of course, illegal to charge very high rates of interest, though one may deplore it, nor is rental purchase itself illegal. I would certainly advise people entering into any agreement, whether to rent or to buy a property, particularly people contemplating a rental purchase agreement, to look at that agreement very carefully and to get legal advice on it before signing. This cannot be said too often or too strongly.

A rental purchaser has less protection than somebody renting under the Rent Act, or somebody buying property under a conventional mortgage, and, depending on the terms of the agreement, he will probably have wide repairing obligations as well, which he will need to take into account in considering his potential outgoings on the property. I hope that there will be some publicity arising from this debate and that it will encourage potential rental purchasers to consider whether they would be better off in traditional renting or whether they might buy on a conventional mortgage.

I am of course aware that some local authorities are concerned that the rent payments made under rental purchase schemes are very high in comparison with conventional rents, and I have asked my right hon. Friend the Secretary of State for Social Services to look into the question of eligibility for housing benefit for those payments. I cannot anticipate the results of my right hon. Friend's inquiries into the operation of the present system, but I can say that he will be concerned to ensure that there is consistency across the whole field of benefit payments and that payment is directed on a fair basis to those who need it. I believe that it will be some weeks before he is able to announce the results of his inquiries.

The hon. Member and some others who have written to the Department have asked that we legislate to outlaw rental purchase. I believe that the sort of rental purchase scheme about which we have heard has sprung up partly as a means of getting round the fair rent provisions of the Rent Acts. We know that there are many devices for evading the Rent Acts—for example, sham licences and holiday agreements which last longer than any holiday could. Landlords resort to these devices in order to obtain a market rent for their properties.

The Housing Bill which we intend to introduce later this Session will enable landlords to obtain market rents on assured tenancies, which will give the tenant security and enable the landlord to obtain a reasonable return on his asset. This should encourage more privately rented property on to the market. It should offer a better choice of accommodation to those people whose income and circumstances are presently driving them to take up rental purchase agreements, in the face of shortages of accommodation to rent. It will reduce the incentive to vendors to sell on rental purchase when they can obtain good returns from renting their property.

We do not at present propose to legislate against rental purchase agreements because we do not have evidence that nationally they are causing problems, though in some areas, such as the hon. Member's constituency, they may well be. One does not pass major legislation to deal with a phenomenon about which there is so little information.

I am grateful to the hon. Member for raising this subject. I hope that he will accept my assurances that I share his concern for those very unfortunate people who have found that rental purchase is not the best means to set about buying a house, and have got into difficulties. I cannot emphasise too strongly that anybody contemplating it should know exactly what he is letting himself in for and should get legal advice before signing any agreement. I believe that the changes in the forthcoming Housing Bill will make rental purchase less attractive both for vendors and for prospective rental purchasers. My Department will study the information we are expecting from the Association of Metropolitan Authorities, and any other information that we are sent about the scheme, and my hon. Friend and I will certainly keep the position under review.

I have recently written to the hon. Gentleman and informed him that I hope to be visiting his constituency shortly. I shall be willing to hear at first hand about problems caused by rental purchase. I hope that he will keep in touch with me so that we are fully aware in the Department of the problems experienced by his constituents.

Question put and agreed to.

Adjourned accordingly at one minute to Three o'clock.