Regulation for sale and rent-back

About 50,000 homes have already been sold in sale and rent-back deals

Sale and rent-back schemes, sold to homeowners who cannot afford their mortgages, are to be regulated by the Financial Services Authority (FSA).

The schemes are widely advertised, and are promoted as a way of swapping a mortgage for an affordable tenancy.

The authorities are worried some people have been tricked into unfair deals.

The FSA will regulate the sale of these schemes from July this year, which will give it the power to ensure they are fair to home owners.

"Unscrupulous companies must not be allowed to exploit people when they are vulnerable with dodgy deals that end up pushing people out of their home," said the chief secretary to the Treasury, Yvette Cooper.

"The Government is proposing tough new regulation to give vulnerable homeowners better protection when they need it," she said.

Pitfalls

Basic regulated standards of fair treatment and redress are essential, to avoid vulnerable households being exploited by unscrupulous operators Michael Coogan, CML

Typically, sale and rent-back schemes involve people selling their homes at a discount to the market price, and then being granted a tenancy by the new owner, for between six and 12 months.

Last month the Office of Fair Trading (OFT) told 16 companies involved in the business to justify the apparently misleading claims they had been making in their adverts.

In an earlier study, published in October 2008, the OFT found numerous pitfalls with the schemes, which had led to some people not even being able to remain in their homes as tenants.

It found that:

• some consumers went into deals that were not the best option for them

• some sale and rent-back firms had mislead customers about the value of their properties or their subsequent security as tenants.

• some firms had imposed large rent increases, or even evicted tenants after a short tenancy period.

• some consumers might be evicted because they could not afford the agreed rent.

Welcome

The consumers organisation Which? welcomed the FSA's new role, and said people should avoid going into sale and rent-back schemes until formal regulation begins.

"In the current economic environment, consumers are at significant risk of not getting a fair price for their home and facing the risk of eviction in as little as six months," said Dominic Lindley of Which?.

This stance was supported by the Council of Mortgage Lenders (CML), which said it had been calling for formal regulation for the past two years.

"Lenders cannot always avoid repossession action through the courts, and sale and leaseback could potentially be a realistic alternative for some people as a last resort," said the CML's director general Michael Coogan.

"But basic regulated standards of fair treatment and redress are essential, to avoid vulnerable households being exploited by unscrupulous operators," he added.