Crackdown on sale and rent back

Landlords who buy properties at under market value and allow the previous owners to rent it back are to be investigated by the Office of Fair Trading amid concerns they take advantage of desperate homeowners.

The practice – known as sale and rent back – has long attracted controversy because most properties are sold at a significantly reduced price, and tenants are often told they can stay in their home for years when in reality letting agreements are normally for six months only.

There have also been concerns about the way firms and private landlords advertise, with many targeting vulnerable families struggling with loan repayments and other masquerading as equity release schemes.

The Office of Fair Trading has now announced that it believes that rent back schemes need statutory regulation by Financial Services Authority (FSA) to better protect consumers and clean up the sector.

Its investigation into the market found that some sale and rent back firms charge tenants substantial rent and even evict tenants after a short tenancy period. Many people also end up losing their homes if the landlord defaults on the mortgage or they find they cannot afford the agreed rent.

John Fingleton, chief executive of the OFT, says: “Sale and rent back deals have potential to cause serious and permanent harm to often vulnerable homeowners. The unfamiliar and highly pressurised situations that these people find themselves in may leave them particularly vulnerable to misleading statements or valuations from sale and rent back firms looking to make a deal.”

The call has been largely welcomed by commentators, who agree that regulation would give better powers of redress to consumers who have been duped by sale and rent back landlords.

Citizens Advice says the government must now act quickly, as the current economic climate has left even more people vulnerable to sale and rent back.

David Harker, chief executive of Citizens Advice, says it has seen cases of sale and rent back where people have been left suffering huge financial and emotional losses.

"With more people seeking advice about mortgage arrears we are concerned that these safeguards should be put in place as soon as possible,” he adds. “While these agreements might be the right thing for some people, consumers need the sort of robust and binding safeguards that only statutory regulation is likely to provide.”

Despite concerns about the unscrupulous actions of some landlords, some commentators say there is a role for sale and rent back.

David Salusbury, chairman of the National Landlords’ Association, says: “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.”