The Office of Fair Trading (OFT) has launched a study this week into the 'sale and rent back' sector of the property market to ensure that home owners are adequately protected.
The concept of sale and rent back, or sale and lease back, schemes is a relatively recent one, marketed as enabling homeowners to sell their property for a discount price but to remain living there as a tenant.
The OFT predicts that with repossessions on the rise as households find they cannot keep up with their mortgage
repayments, sale and rent back agreements will become increasingly popular as a way for individuals to remain in their home, making the investigation into the sector an "important" and "timely" one.
The investigation will entail a detailed examination of the product, meanwhile considering the circumstances in which it is commonly sold, and determining whether or not current consumer legislation in this area is sufficient.
"Sale and rent back schemes might be helpful for some consumers but there are a number of potential concerns including whether consumers in difficult circumstances are making well informed choices." said John Fingleton, OFT chief executive.
"We are therefore prioritising this work to take a good look at whether consumers are adequately informed and protected."Equity release
company SHIP (Safe Home Income Plans) has welcomed the OFT's investigation, and calls for full regulation of these "potentially risky schemes" which involve sale and rent back companies typically paying 60 to 70 per cent less for a property than its market value.
Such schemes, SHIP warns, leave people vulnerable to being forced out of their homes within six to 12 months of selling, either through significant increases in rent, the provider selling the property, or the property being repossessed if the provider ceases trading.
Andrea Rozario, director general of SHIP said: "We are not saying all Sale & Rent Back schemes should be shut down, but we do feel very strongly that they all need to be regulated in the same way that other significant financial arrangements are, such as real equity release products, mortgages, investment products etc.
"Given the increasing numbers of people facing big debt problems, in many cases including the possible repossession of their home, it is vital that the Government takes very urgent action before larger numbers of people fall for the apparent ‘quick fix' of Sale & Rent Back without appreciating the risks. When these people subsequently realize they have jumped from the frying pan into the fire, it will be too late - and there is no simple recourse open to them."
The OFT expects to complete its investigation in September this year.
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