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Search forSale and rent back to be probed by OFT
15:06 - 14-May-2008
The Office of Fair Trading has announced a market study into the sale and rent back sector, where companies purchase troubled homeowner's properties at below market value and then lease them back.
Citizen's Advice branded sale and rent back 'a disaster in waiting' last autumn and both the Council of Mortgage Lenders and charity Shelter have called for watchdogs to investigate the sector.
Adam Sampson, chief executive of Shelter, said: 'This study is urgently needed, and comes on the back of vulnerable people losing their homes to some dishonest sale and leaseback companies.
'These companies encourage hard-up homeowners to sign up for what is plainly a very bad deal. Shelter has seen cases where homeowners have not only lost out financially after selling their homes to an sale and leaseback company, but also lack any right to permanently stay in their home and ultimately find themselves homeless.
'Shelter has called on the Government for regulation in this growing sector, and we hope the OFT study will offer the public improved protection against the hidden dangers of some schemes and ensure all sale and leaseback companies operate in best interests of consumers.'
The past year has seen an explosion in the number of firms offering to sell and rent back properties, as increasing numbers of homeowners face financial difficulties.
But many of those who take up sale and rent back offers do not realise that they have no security beyond a typical six to 12-month assured leasehold tenancy agreement and could face losing their property at the end of the initial rental period or if their landlord goes bust.
Sale and rent back firms range from large national organisations, to professional buy-to-let landlords adding to their portfolios and middle men offering to fix cheap property for amateur buy-to-let investors.
Typically sale and rent back arrangements are taken up by those facing possible repossession of their homes and while companies claim to offer around 80% of a properties value, industry sources say many often receive 60% or lower.
Sale and rent back companies heavily promote their ability to complete swiftly, their payment of legal fees and willingness to help customers sort out their debts. They also advertise their discretion, claiming neighbours need not know about debt problems and families losing their home.
The OFT said that given the current economic climate, with rising mortgage rates and increasing repossessions, the market study was timely.
It will take a detailed look at sale and rent back, bearing in mind the circumstances in which it is sold, and consider whether existing consumer protection legislation is sufficient and effective. The study should be completed in September.
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.'
The OFT will be contacting key parties directly. Other interested parties can submit written views, preferably by the 14 June, to: Sale and rent back study, Office of Fair Trading, Fleetbank House, 2-6 Salisbury Square, London EC4Y 8JX. Email: saleandrentback@oft.gsi.gov.uk
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