Over the last couple of years we have heard more and more about sale and rent back schemes, which many of us may never have heard of before. However, since interest rates started to soar in 2006, many homeowners found that they were not able to keep up with rising mortgage repayments, and this resulted in them having to take drastic action to avoid losing their homes altogether. The problems have become worse over the past year as a result of soaring living costs, rising bills, and tighter credit conditions, which have all adversely affected the ability of many homeowners to keep on top of their mortgage repayments.

Many have turned to sale and rent back companies to try and get themselves out of this situation. These companies work by purchasing the home from the homeowner, which means that they no longer have a mortgage and don’t have to worry about falling into arrears, and then renting back the home to the former homeowner on an indefinite basis, so that the former homeowner does not have to worry about uprooting and moving out of the property.

However, many industry officials have expressed concern over the schemes, claiming that many homeowners have been ripped off by sale and rent back firms in one way or another. Some are said to have been paid way below the market value of the home by the sale and rent back firm, and others are said to have had their tenancies ended abruptly despite being assured that they would have a long term tenancy.

It is said that in some cases the new landlord has defaulted on the mortgage repayments after buying the property, and the home has been repossessed anyway, and in some cases the sale and rent back firms have allegedly put rents up suddenly and then evicted the former homeowners when they are unable to pay the new higher rent.

The government is now looking at ways to try and bring these sale and rent back firms under the regulation of the Financial Services Authority.

The Office of Fair Trading has been urging the government to look at firmer regulations for these firms, and one OFT official said: “Our research shows that sale and rent back deals have potential to cause serious and permanent harm to often vulnerable homeowners.”

He added: 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. Even those customers for whom sale and rent back might be the best option could be unaware they are currently bearing almost of all the risks.”

The Citizen’s Advice Bureau also wants regulation to be brought in quickly, and one CAB official said: “While sale and rent back 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.”

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