Sale and rent back to be regulated
Wednesday, 15 Oct 2008 08:09
Sale and rent back sector will be regulated
The sale and rent back sector needs regulation including an obligation for firms to be more transparent about the terms of the tenancy, the Office of Fair Trade (OFT) has found.
The OFT has concluded that statutory regulation is needed to protect consumers from "unacceptable behaviour" and firms could be ordered to offer compensation if they break the rules.
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.
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."
Andrea Rozario, director general of Safe Home Income Plans (SHIP), a professional body representing equity release providers, said: "One point not picked upon by the OFT that we consider vital to address is 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."