Sale and rent back cowboys face new rules

Wednesday, 15 October 2008 11:01

The sale and rent back sector needs regulation to protect consumers from "unacceptable behaviour", the Office of Fair Trade (OFT) has found.

Sale and rent back firms offer homeowners struggling to pay their mortgage a way to stay in their home, by selling the property and renting it back.

However, the report found some customers are being misled as to the value of their home and in some cases are being told they can stay for years when their tenancy may only be guaranteed for a matter of months. Also they are being charge exorbitant valuation fees.

Details of the regulation will be left up to the Financial Services Authority (FSA) but the OFT has recommended more transparency about the initial valuation and sale price, the terms of the tenancy and the amount of rent to be paid, as well as a requirement on firms to tell consumers about the free, independent advice available to them before they decide to sell.

John Fingleton, OFT chief executive, said: "Our research shows that sale and rent back deals have potential to cause serious and permanent harm to often vulnerable homeowners.

"Recommending statutory regulation is not something we do lightly or often, however in this case we consider it necessary to put a stop to the unacceptable behaviour of some sale and rent back operators and to ensure consumers are better protected."

David Salusbury, chairman of the National Landlords Association (NLA), said: "We believe the majority of sale and rent back landlords act with professionalism and integrity. A small number of 'rogue' operators have now brought the entire market under close scrutiny."

Citizens Advice reports an number of severe cases arising from sale and rent back.

"These are long-term agreements about people's homes so when sale and rent back goes wrong people can suffer huge financial and emotional loss. While sale and rent back agreements might be the right thing for some people, consumers need the sort of robust and binding safeguards that only statutory regulation is likely to provide," said Citizens Advice chief executive, David Harker

"With more people seeking advice about mortgage arrears we are concerned that these safeguards should be put in place as soon as possible. Therefore we urge the government to act on the OFT recommendations without delay.

"In the meantime we call on the reputable businesses in the sale and rent back sector to develop rigorous standards of conduct in the way that sale and rent back agreements are sold and managed."

Andrea Rozario, director general of Safe Home Income Plans (SHIP), a professional body representing equity release providers, highlighted the issue of whether housing benefit would be available to anyone undertaking sale and rent back.

"We believe that many customers are given a false sense of security that government housing benefit will be available should they be unable to meet rent payments, but this is not guaranteed to be the case," she said.

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