Draft Queen's Speech: Sale and rent back under microscope

The controversial sale and rent back sector is set to be investigated by the Office of Fair Trading (OFT), the prime minister announced today in the draft Queen's Speech.

The move could see the practice - where people sell their homes to a firm, often at a great discount, and then rent them back - falling under firmer regulation.

Gordon Brown said today in parliament: "We will look at whether further action is required in light of the study by the Office of Fair Trading (OFT) into the sale and leaseback market and the rise in second charge mortgages to ensure consumers are treated fairly."

As the economy slows and household budgets are squeezed by high food, fuel and energy prices, not to mention the credit crunch making standard borrowing harder, the sale and rent back sector is growing quickly.

If repossession levels rise greatly, the OFT warns that the take-up of sale and rent back arrangements could increase further.

The sector has fallen under scrutiny with incidences of people being offered massive discounts on their homes and being forced out of their homes after initial tenancies expire.

John Fingleton, OFT chief executive, said: "Sale and rent back schemes might be helpful for some consumers but there are a number of potential concerns including whether consumers in difficult circumstances are making well informed choices.

"We are therefore prioritising this work to take a good look at whether consumers are adequately informed and protected."

Michael Coogan, director general of the Council of Mortgage Lenders (CML), said: "The OFT market study in sale-and-leaseback is welcome, and we hope it will be completed by September, as promised, and acted upon quickly.

"The reality is that sale-and-leaseback companies are already targeting home-owners in difficulty. The quicker we have effective regulation of the sector to provide protection for consumers, the better the safety net for borrowers in financial difficulty will be."

David Salusbury, chairman of the National Landlords Association (NLA)welcomed the investigation.

"Sale and rent back is relatively new, but is set to grow considerably over the next 12 months," he said.

"With a tighter economic climate, there is bound to be more interest from homeowners who are struggling to keep up with their mortgage repayments and are looking to stave off repossession.

"Sale and rent back will not be right in all situations and it should not be seen as some kind of panacea to serious financial difficulty."

Details of the consultation and how to be involved are available on the OFT website.

Daniel Barnes