October 15, 2008 | posted by Pam Atherton in House prices, Mortgages |

The Office of Fair Trading is calling for the regulation of sale and rent back arrangements - and not before time.

This has been a scandal in the making for over a year.  These arrangements are unregulated and hundreds of thousands of property owners are desperate to sell their homes to pay off debt, making sale and lease back an easy sale for rogue operators.

On first sight, sale and rent back can seem like the ideal solution to a property owner who is facing repossession. After all,  if you’re told that in return for selling your home at a discount, you can continue to living there by paying rent and possibly even buy it back at a later stage when your finances have recovered.

But unscrupulous operators have been exploiting vulnerable homeowners by paying only 50 per cent of  the market value of the properties they buy or hiking rents after only six months so that the occupants can’t keep up payments and the property has to be sold.

Over 1,000 firms are offering sale and rent back arrangements, with around 50,000 transaction having taken place already.  A flood of deals is likely to take place in the coming months as the number of repossessions in the UK is expected to reach 45,000 this year, according to the Council of Mortgage Lenders.

OFT chief executive, John Fingleton, says that these arrangements are often mis-sold because homeowners are not made aware of the risks and that sharp practice can lead to people losing their homes and remaining in debt.

Homeowners are sometimes led to believe that they can remain in the home indefinitely, whereas some agreements only give 6 to 12 month tenancies. In other cases, the landlord defaults on the mortgage and the property is re-possessed through no fault of the original homeowner.

The OFT is calling for regulation which would require that homeowners are given independent financial advice before selling and are made aware of the financial risks.

Defaqto banking and mortgage principal, David Black, says: “These schemes should definitely be regulated as they are potentially dangerous. People think sale and lease back is like equity release, but it isn’t. The market is completely unregulated and tenants don’t have sufficient security of tenure.”

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