Consumer watchdog to investigate sale and rent back schemes
Sale and rent back schemes are to be investigated by the Office of Fair Trading amid concerns that they can leave vulnerable homeowners out of pocket and even homeless.
The schemes - which can be run by companies or individuals - offer to buy properties from their owners below market value. In return, the former owners are able to rent the property and continue to live there for a pre-agreed period of time.
The consumer watchdog launches its investigation amid concerns that sale and rent back schemes are targeting vulnerable homeowners who will sign up to uncompetitive terms because they need to move quickly. Many schemes only allow people to rent their former homes for six months – effectively leaving them homeless after this time.
Peter Tutton, a debt policy officer at Citizens Advice, says: "We have seen a number of cases where people in mortgage arrears and facing the threat of repossession have gone ahead with sale and rent back on the understanding this would allow them to remain in their home in the longer term, only to find themselves homeless within a year."
Although the sale and rent back sector is relatively new, it has already grown at an alarming rate. This growth is set to continue as the credit crunch means more homeowners are struggling with mortgage repayments and possible repossession.
John Fingleton, the chief executive of the OFT, says: "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 investigation was first announced in Alistair Darling’s Budget earlier this year.
David Salusbury, chairman of the National Landlords Association, says: "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.”
A homeowner’s worst nightmare; repossession is an action of last resort by mortgage lenders to recover money from borrowers that have failed to keep up with repayments on their mortgage or other loan secured on their home (see secured loan). Repossession is a legal procedure that has to go through several processes before the homeowner is evicted and the property reposed. These are: if a borrower keeps defaulting; the lender applies for a solicitor’s notice; the lender instigates possession proceedings through the court; at the court hearing a possession order is granted and sometimes a possession warrant; a bailiff is appointed and an eviction notice issued at which point the homeowner has two to three weeks to vacate the property.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.