Sale and rent back is a relatively new sector that appears to be growing quickly. If the number of consumers potentially facing repossession increases, it is possible that the takeup of sale and rent back arrangements will also increase. Given the current economic climate, the OFT considers this important market study is timely. 

The OFT intends to take a detailed look at the characteristics of the sale and rent back product and, bearing in mind the circumstances in which these products are sold, consider whether existing consumer protection legislation is sufficient and effective. They aim to complete the work in September this year. 

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 14 June, to: 

Sale and Rentback Study 

Office of Fair Trading 

Fleetbank House 

2-6 Salisbury Square 

London 

EC4Y 8JX 

Email: saleandrentback@oft.gsi.gov.uk 

Further information on the Market study is available at http://www.oft.gov.uk/advice_and_resources/resource_ base/market-studies/saleandrent 

Why is the OFT concerned? 

There are two sides to every coin and this issue is no exception. Described as ‘a disaster in waiting’ by the Citizens Advice Bureau and a ‘saviour’ by some who fear repossession and all the trauma that goes along with it, ‘sale and rent back’ is certainly something that should be monitored. 

The companies target mortgages homeowners who are in arrears; are already receiving warning letters from their lender and are very worried about losing their home, having to find somewhere else to live and keeping their family together. Their advertising in the national press offers 70-90% of the market value depending on a surveyor’s valuation but as the company is paying for the survey there is the possibility that the valuation will be very low anyway. They claim that people rarely achieve the price they are asking for and this may well be true but there is no protection for the homeowner as these companies are not regulated by the FSA. 

Citizens Advice has already called for this situation to change, in an interview in October 2007 on ITV1’s Tonight programme, Trevor McDonald spoke to Peter Tutton of the CAB who said: “We’ve got people who are vulnerable trying to stay in their home being enticed into an industry that has no controls on it at all at the moment and that is a disaster waiting to happen. 

“Unless something is done to bring this industry into some kind of regulation to get some sort of framework of quality and assurances for people entering into these agreements, the kind of security tenure they’re going to get, what they are paying and what protection they get against things going wrong, we could see a lot more people really finding they are losing out lots of money and still losing their homes.” 

The schemes may seem like a blessing to beleaguered homeowners as they promise that they can stay in their home, with a rent that may be less than their mortgage payment was. They also promote the fact that they can finalise the arrangements in less than a week - which must seem like a dream for those worried out of their minds. Less importantly, the neighbours ‘need never know’ – another much vaunted benefit that actually will not stand the test of time as many offer no guarantee that their tenancy will be renewed after the initial 12 months. This means they are simply delaying the problem and possibly losing out on the retention of some degree of equity. 

Set against the negatives, for the homeowner who has a little equity in the property but insufficient income to maintain the place, these schemes may work and provide a breathing space while they sort out their situation. 

If the OFT has the information it needs – and some could be coming from estate agents – their study may clarify the good and the bad and thus improve the currently vague situation.

 
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