Page last updated at 16:19 GMT, Wednesday, 3 June 2009 17:19 UK

Sale-and-rent-back is regulated

The new rules should stop home owners being lured into bad deals

Sale-and-rent-back schemes which target people in danger of repossession will be regulated by the Financial Services Authority (FSA) from 1 July.

Last year the Office of Fair Trading (OFT) found they could cause "serious harm" to vulnerable homeowners.

Some homeowners have found themselves being evicted soon after selling their homes cheaply to new landlords, despite assurances to the contrary.

The FSA said sale-and-rent-back firms must treat their clients fairly.

"We know that some consumers enter into sale and rent back arrangements without understanding the costs and risks involved," said Ed Harley, FSA head of mortgage policy.

"This can be a source of real distress for people in already difficult circumstances.

"Firms entering our regime will need to run their business in a way that means customers are treated fairly," he added.

'Fit and proper'

The FSA's new rules mean that firms in this line of business will have to tell customers how long they can stay in their properties before they enter a deal.

A more comprehensive regulatory regime will be introduced in June 2010.

Firms who are involved in buying homes and them letting them to their former owners will have to be run by people who are, in the FSA's view, "fit and proper".

They will also have to apply for authorisation to carry on this line of business.

Last year, an OFT investigation found there were about 1,000 firms offering sale-and-rent-back schemes.

In January, it told 16 companies offering these deals to substantiate the claims they were making in their adverts.

The OFT said the doubtful claims in the advertisements included suggestions that customers could stay in properties after they were sold, by renting them back for as long as they wished, at fair market rates.

Clients were also told that they could buy back properties at an agreed point in the future, and in the meantime would have flexible rental terms with periods of low rent.

Andrea Rozario, director general of the equity release trade body Safe Home Income Plans (SHIP), said: "This is a natural step to protect consumers as economic conditions worsen and more people need to release equity from their homes."

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