Money
Managing your money
Sale and rent back schemes to be investigated
Unregulated "sale and rent back" firms are to be investigated by the Office of Fair Trading following a host of complaints about the way the schemes are run from consumer groups, writes Holly Thomas
The schemes, often targeted at older people who want to access some of the cash tied up in their homes to boost retirement income, pay only around 75 per cent of the value of the property in return for a quick sale. Some companies boast the deal can be done within one week.
The firms allow sellers to stay in their home by paying rent to the company at a rate less than their previous monthly mortgage payments. Crucially, they differ from equity release schemes which are fully regulated by the city watchdog - the Financial Services Authority (FSA).
However, one major complaint with sale and rent back schemes is that, unlike equity release, there is no security of tenure which means people can find themselves evicted.
An OFT spokesman said: "Following concerns raised by consumer groups and industry, it was concluded that further information was needed about how the sector worked and any potential consumer detriment.
"The OFT will lead a study of the sector, focusing on homeowners' experience of these arrangements.
"If found to be necessary, this will also include options to strengthen consumer protections."
The Council of Mortgage Lenders, and charities Citizens Advice and Shelter want such companies to be answerable to the FSA - so that any consumers mis-sold a scheme will be eligible for compensation.
John Socha at The National Association of Sale and Rent Back (NASARB), said: "Regrettably some providers have been targeting and abusing unwary and vulnerable consumers.
"We are pleased that the OFT is going to be looking into the practices of sale and rent back providers, the majority of whom provide owner-occupiers with their only opportunity to stay in their home as an alternative to imminent repossession."
NASARB is to publish a draft code of practice at the end of April and will include a form of redress with sanctions for sale and rent back providers who fail to comply.
Socha said the new code would be squarely focused on protecting the financially vulnerable and will ensure that compliance with the code is transparent.
He said: "The code is designed to make sure an owner-occupier knows what they are getting into before they sign on the dotted line. It is all about attempting to offer a long-term sustainable tenancy and peace of mind."
* Holly Thomas is Deputy Personal Finance Editor at the Daily Express and Sunday Express. Holly's views represent her own opinions and are for general information only. Always seek independent financial advice.
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