The sale and rent back sector needs statutory regulation with better protection for consumers, according to an OFT market study published today.
The OFT report says that some consumers enter into sale and rent back transactions when this is not the best option for them. It also reports that some sale and rent back firms may mislead customers as to the value of their property or the security they have as tenants. This includes telling people they will be able to stay in their home for years, when in reality the tenancy may only be guaranteed for six to twelve months.
Other firms impose substantial rent increases or even evict tenants after a short tenancy period, while other consumers are evicted because they cannot afford the agreed rent, which suggests staying in their property was not sustainable in the first place.
It is also possible that tenants may lose their homes if the landlord defaults on the mortgage.
As a result, the main recommendation of today's OFT report is that there should be statutory regulation of the sale and rent back sector by the Financial Services Authority (FSA).
The details of regulation will be up to the FSA to determine but the OFT considers it should include an obligation on sale and rent back firms to be more transparent about the initial valuation and sale price, the terms of the tenancy and the amount of rent to be paid. In particular, firms must offer forms of tenancy that match the assurances they give to customers, and there should be a requirement on firms to tell consumers about the free, independent advice available to them before they decide to sell.
Regulation may also require firms who fail to honour their commitments to offer redress to consumers.
John Fingleton, OFT Chief Executive, said: 'Our research shows that 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.
'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.
'Recommending statutory regulation is not something we do lightly or often, however in this case we consider it necessary to put a stop to the unacceptable behaviour of some sale and rent back operators and to ensure consumers are better protected.'
