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Regulation called for in sale-and-lease-back schemes

23 October 2007
The sale-and-lease, or ‘mortgage rescue’ schemes that are making tenants homeless and worsening the credit crisis are in desperate need of regulation, according to the Council of Mortgage Lenders, Citizens Advice Bureau and housing charity Shelter.

Such schemes buy people’s homes at less than market value, on the agreement that the previous owners can rent back the house for as long as they wish. However, many of these houses are bought on a buy-to-let basis with money borrowed from American sources – the consequences of this in light of the current credit crunch, are that owners are defaulting on mortgage repayments, losing the houses to repossession and making the tenants homeless.

The CML, Citizens Advice and Shelter have joined forces to see that consumers are granted more protection by calling upon the Treasury to allow the FSA to regulate the sale-and-lease schemes, which currently offer very little security of tenure and those selling their homes lose out because they are often sold without an independent valuation.

Michael Coogan, director general at CML said: “Controls exist for action taken by mortgage lenders when customers are in arrears but there are no such safeguards for customers entering into sale-and-leaseback schemes. In a climate of rising repossession, consumers in financial difficulty need to be well informed and protected.”

The schemes have been criticised because when people are entering into them they are often in a vulnerable position and could be facing repossession; many lack understanding about the scheme, which makes the unregulated marketplace potentially misleading.

Advertising, sales methods and customer service standards are also being called into question and the group is requesting that they be investigated by the Office of Fair Trading.

Teresa Perchard, Citizens Advice Public Policy Director commented: “This is a growing problem and a completely unregulated sector which we think the government needs to look at. We have seen a number of cases where people in mortgage arrears and facing the threat of repossession have gone ahead with a so-called 'mortgage rescue' scheme on the understanding this would allow them remain in their home in the longer term, only to find themselves homeless within a year.

“These schemes can be difficult to understand, and the information about them can be misleading. Usually people will be required to sell their home at much less than its market value and they will have very little security of tenure as a tenant, but this is not always made clear.”

Adam Sampson, chief executive of Shelter, said that these schemes are “daylight robbery”, and the group wants the Government to act quickly and “introduce regulation to stamp out this unscrupulous practice, which is cashing in on people's financial problems and deepening their misery.”

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